Analysts at Susquehanna are sounding a word of warning forward of Superior Micro Gadgets‘ (NASDAQ: AMD) first-quarter earnings report due on Tuesday after the market shut.
The agency maintained a optimistic score on the shares however lowered its value goal from $200 to $185. The analysts count on the corporate to challenge weaker steerage within the upcoming report that would restrict the inventory’s near-term upside. This is why.
So much is using on AMD’s knowledge middle GPUs
Buyers are anticipating nice information from the corporate’s knowledge middle enterprise, the place income surged 43% within the fourth quarter of 2023 over the earlier quarter. AMD has beforehand guided for its knowledge middle graphics processing units (GPUs), that are in excessive demand for artificial intelligence (AI), to rake in round $3.5 billion in income this 12 months.
Nonetheless, the remainder of the enterprise is anticipated to stay smooth. A weak 12 months for PC shipments precipitated AMD’s consumer section, together with gross sales of Ryzen desktop processors, to put up a 25% decline in income final 12 months. The gaming and embedded segments additionally noticed revenues fall, however administration does not count on the embedded enterprise to get better till the second half of 2024.
Is the inventory a purchase forward of earnings?
AMD might want to supply a robust outlook for 2024 to justify the inventory’s valuation. AMD shares commerce at a forward price-to-earnings ratio of 44, which is dearer than Nvidia‘s 35 ahead P/E. If the inventory hits the analysts’ value goal, it would doubtless be on account of surging demand for its MI300 knowledge middle GPUs and the expectation for a restoration in AMD’s consumer section later this 12 months.
Nonetheless, AMD’s share value ought to ultimately climb again to the earlier excessive of $227. The corporate has a profitable alternative to provide chips for AI PCs and knowledge facilities for a few years. From a long-term perspective, the inventory can be a compelling purchase on any weak spot following tomorrow’s earnings report.
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John Ballard has positions in Superior Micro Gadgets and Nvidia. The Motley Idiot has positions in and recommends Superior Micro Gadgets and Nvidia. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
