US Markets
Monday, January 22nd, 2024 7:18 pm EDT
Key Points
Surging Demand for AI Chips: The article highlights the increasing demand for graphics processing units (GPUs), particularly artificial intelligence (AI) chips that power programs like ChatGPT. This surge in demand has resulted in significant gains for companies manufacturing GPUs.
AMD’s Rise and Investor Expectations: AMD experienced a remarkable rise of nearly 130% in 2023, driven by investor optimism. Investors are betting on AMD’s AI-oriented GPUs, scheduled to ship in the current year, with the belief that these products can capture market share from Nvidia. The GPUs are seen as a potential alternative for major buyers such as Microsoft and Meta.
Analyst Downgrade and Concerns: Northland Capital Markets analyst Gus Richard downgraded AMD’s rating due to elevated expectations for AI chip growth, which he considers to be driven by “irrational exuberance” among investors. Richard predicts total AI chip revenue of $125 billion in 2027, but the wide range of expectations, ranging from $100 billion to $400 billion, adds uncertainty. He cites distorted demand signals, double ordering by customers, and recent U.S. restrictions on chip exports to China as factors influencing his view. In his calculation, if AMD were to sell $16 billion in AI chips in 2027, achieving a 13% market share, he sees $45 billion in total 2027 revenue for AMD, suggesting that this figure is already priced into the stock. Following this analysis, AMD shares fell approximately 3.5% to $168.17, while Nvidia shares saw a modest increase of less than 1%.
The demand for graphics processing units (GPUs), particularly those designed for artificial intelligence (AI) applications, has seen a significant surge, driving substantial gains for companies in the GPU manufacturing sector. In 2023, AMD experienced a remarkable increase of nearly 130%, fueled by investor optimism surrounding the company’s upcoming AI-oriented GPUs slated for shipment in the current year. Investors anticipate that AMD’s products can potentially capture market share from its competitor, Nvidia, and provide alternative solutions for major buyers such as Microsoft and Meta. However, this heightened expectation in AI chip growth has led Northland Capital Markets analyst Gus Richard to express uncertainty about the future trajectory of AMD’s shares. In a note, Richard downgraded AMD’s rating to a “heck if we know” status, equivalent to a market perform or hold rating. The analyst attributes this decision to what he perceives as “irrational exuberance” among investors, with varying estimates for total AI chip revenue in 2027 ranging from $100 billion to $400 billion. Richard suggests that the distorted demand signals are a result of Nvidia being the dominant supplier of AI chips, leading to customers engaging in “double ordering” due to supply constraints. Additionally, recent U.S. restrictions on certain chip exports to China could pose challenges to growth. Richard’s calculations envision a scenario where AMD achieves a 13% market share by selling $16 billion worth of AI chips in 2027, doubling its revenue every year from $1 billion in 2024. Despite this, he contends that the current stock price already incorporates an expectation of $45 billion in total revenue for AMD in 2027. Consequently, AMD shares experienced a decline of around 3.5% following Richard’s assessment, trading at $168.17, while Nvidia shares saw a marginal increase of less than 1%. The analysis reflects the uncertainties and complexities surrounding investor expectations in the rapidly evolving AI chip market and the challenges faced by companies in meeting the growing demand.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/01/22/amds-stock-surge-leads-analyst-to-a-heck-if-we-know-rating.html
