AMD stock forecast and price prediction

Key points

• AMD is a market leader in server and personal computer microchips.
• The stock has gained a significant share in the data center market in the past decade.
• Artificial intelligence could help AMD’s growth rebound in the coming years.

Intro

Advanced Micro Devices, or AMD, is a global market leader in designing microprocessors and graphics processors for personal computers and other electronic devices. AMD’s stock price has increased in the past 10 years, making it one of the most popular growth stocks in the technology sector.

AMD shares dropped 54.9% in 2022 during a broad tech sector sell-off, the stock’s worst annual performance in a decade. Fortunately, AMD shares have roared back in 2023, gaining more than 70% year to date.

The stock hasn’t set a new all-time high since November 2021 but has regained its positive momentum.

The chipmaker has a long history of innovation and cutting-edge semiconductor design, and the rise of cloud computing, artificial intelligence and other secular tech growth trends will likely provide long-term growth opportunities for AMD in coming years.

The key to AMD’s success may hinge on its ability to stay one step ahead of competitor Intel Corp. (INTC) and continue to gain valuable market share in the PC and server processing chip market.

AMD at a glance:

AMD went public in September 1972, specializing in modifying chips for other semiconductor companies, such as Fairchild Semiconductor. While there was a lot of excitement surrounding the computing field then, AMD’s initial public offering (IPO) investors certainly couldn’t have envisioned growth opportunities like the internet, smartphones and cloud computing.

In the 1970s, Intel launched the first x86 microprocessors, chips that became the industry standard for PCs and servers. The x86 microprocessor helped propel Intel to become one of the most valuable companies in the world by the 1990s.

In the 2010s, AMD made tremendous strides in creating accelerated processing units (APUs) that competed effectively with Intel’s CPUs, often at more affordable prices. AMD’s Radeon graphics processing units (GPUs) are also comparable to chips from market leader Nvidia (NVDA) in both performance and price.

AMD stock price

AMD went public at an IPO price of $15 back in 1972, and there have been six stock splits in its history.

AMD stock splits

The company’s most recent stock split occurred in 2000 during the dot-com bubble. If you crunch the numbers on all six of AMD’s stock splits, a single share of AMD IPO stock would represent 27 shares of today’s AMD stock.

On a split-adjusted basis, AMD’s stock price climbed up to around $45 in 2000 during the dot-com bubble, but it dropped as low as $5 in 2002 after the bubble burst. AMD shares recovered to as high as $42.80 in 2006 but plummeted to decade lows of $1.62 during the global financial crisis in 2008. AMD retested those lows when it dipped below $2 once again in 2015.

Since 2015, AMD has been one of the best performing stocks in the market. AMD finally returned to its dot-com bubble peak of $48.50 in 2020 but didn’t stop there. The stock made a new split-adjusted all-time high of $164.46 in November 2021 before the 2022 tech sector sell-off began.

How has AMD stock performed?

AMD’s stock performance varies widely, depending on the time frame, with modest gains up until around 2016, when the stock was a penny stock.

Fast-forward to today, AMD has performed much better than the S&P 500. AMD has been one of the best-performing investments recently. Over the past five years, AMD investors have enjoyed a staggering more than 300% gain compared to just a 57% total return for the S&P 500, as of Sept. 5. Currently, AMD stock is up more than 70% year to date compared to the S&P 500’s 20%.

Opportunities and obstacles facing AMD

AMD is well-positioned to continue to outperform but faces several potential stumbling blocks ahead.

The company’s CPU and GPU products are extremely competitive with Intel and Nvidia. However, unlike Intel, AMD relies on Taiwan Semiconductor Manufacturing Co. (TSM) to produce its chips, which could create supply chain issues.

AMD also has a diversified business that produces x86 CPUs and unique GPUs, making it an attractive option for customers requiring both chips. AMD’s EPYC server chips — its new class of x86 high-performance chips designed to advance data center performance — have proven to be comparable to or even better than certain Intel server CPU chips, and AMD has opportunities to gain significant additional market share from Intel.

However, AMD also faces several challenges. The company’s reliance on Taiwan Semiconductor Manufacturing Co. to manufacture its chips exposes AMD to geopolitical risk if China invades Taiwan. Nvidia is widely considered the standard-bearer in the high-end GPU market, putting AMD at a disadvantage in areas, such as AI technology. Finally, Intel still has a massive research and development budget and a dominant share of the server CPU market, so AMD must continue to innovate to maintain its positive momentum.

Strengths

• Highly exposed to large, secular technology growth trends, such as AI and cloud computing.
• Competitive x86 CPU and discrete GPU product offerings.
• The Xilinx Inc. acquisition in 2022 boosts AMD’s data center and AI product breadth.

Weaknesses

• AMD’s reliance on TSMC exposes it to geopolitical risks tied to China.
• Competitor Nvidia is largely considered the market leader in AI chips.
• U.S. focus on domestic chip production could help improve Intel’s foundry capabilities.

What can we expect from AMD in 2023?

Analysts are generally optimistic about AMD’s business and stock price in 2023. The analysts covering AMD are projecting full-year adjusted earnings per share of $2.76 this year, down from an EPS of $3.50 in 2022. AMD analysts are calling for a 3.3% revenue decline this year but a return to 20.6% revenue growth in 2024.

Morningstar analyst Brian Colello says growth in data centers, AI and video gaming technology will propel AMD to new highs.

“AMD expects data center and client revenue to grow as much as 20%-plus sequentially, thanks to server, AI and supercomputer demand,” Colello says.

AMD recently guided for September quarter year-over-year revenue growth of 2%, suggesting the cyclical semiconductor downturn may soon be over.

“Meanwhile, client revenue should be up quite a bit sequentially and year over year as PC demand starts to recover,” Colello says. Morningstar has a “buy” rating and $130 fair value estimate for AMD stock.

CFRA Research analyst Angelo Zino says the ramp of AMD’s EPYC processors and new GPU product launches in late 2023 and 2024 will be positive catalysts for the stock.

CFRA has a “buy” rating and $145 price target for AMD.

The 38 analysts covering AMD stock have a median price target of $145, suggesting significant upside over the next 12 months. However, investors should always conduct their own research before making important investment decisions.

What can we expect in the coming years?

AI technology will be the biggest wildcard for AMD in the next few years. Analysts and investors expect a heavy AI technology investment cycle in the next several years, but much of AMD’s large stock gains so far in 2023 have been driven by a broad run-up in AI-related stocks. It’s still being determined at this point just how much AI-related success and sales growth has already been priced into AMD stock.

Zino says AMD has many AI opportunities inside and outside the cloud computing market.

“We positively view AI customer engagements, which grew by more than seven times sequentially in Q2, as we see AMD as a suitable No. 2 supplier in the data center GPU space,” he says, with Nvidia at No. 1.

However, Bank of America analyst Vivek Arya recommends a more cautious approach to AMD, given the company’s growth deceleration and full valuation.

“We believe consensus is too fixated on AMD’s AI accelerator opportunity, which will be less than 5% of its CY24E sales and where it faces a tough rival in an established NVDA, while likely not paying enough attention to the other 90%-plus of AMD sales.”

Bank of America has a neutral rating and $132 price target for AMD.