What happened
Shares of Advanced Micro Devices (AMD 3.04%) were rallying today, up 6% as of 12:47 p.m. ET.
There wasn't any meaningful news that came out of the company, as AMD reported earnings on May 2, in which it gave a lackluster forward outlook. However, some recent analyst commentary on the recovering PC market, as well as AMD's prospects in artificial intelligence, seem to be lighting a fire under the stock since then.
In addition, it's 13F season, in which leading hedge funds disclose their buys and sells from the previous quarter. AMD attracted some high-profile names in Q1 that may be causing more optimism today.
So what
Bernstein analyst Stacy Rasgon issued a note today on AMD, noting the PC market now appears to be normalizing at 2019 levels after a massive decline following the pandemic boom.
Image source: Getty Images.
Rasgon also noted that CPU manufacturers AMD and rival Intel have been under-shipping end demand to PC manufacturers, with notebook CPUs under-shipping PC demand by 10% and desktop CPUs under-shipping desktop units by 16% in Q1, allowing PC manufacturers to work down inventory. Of note, AMD's client segment, which ships CPUs and GPUs to PC makers, was down a whopping 65% in the first quarter from the prior year.
And while the inventory levels in the supply chain remained "ugly" in the first quarter, it was a little "less ugly" than the fourth quarter, so the industry's inventory levels are heading downward. While the correction may last a bit longer, Rasgon sees inventory having fully corrected in the back half of the year.
In addition to the "getting less bad" inventory picture helping AMD's stock, buy-ins from several hedge funds in the first quarter may also be propelling the stock higher today.
Yesterday was a big day for 13F disclosures, in which leading hedge funds disclose their trades as of the end of the first quarter. As it turns out, some famous names piled into AMD, including Dan Loeb's Third Point Capital and Stan Druckenmiller's Duquesne Family Office, among others.
AMD's stock is still well off its highs, so funds may be playing a broader chip recovery with AMD. In addition, AMD may also be seen by some as having underrated prospects in artificial intelligence. While GPU rival Nvidia seems to get all the headlines, AMD does have leading-edge CPUs and GPUs in its portfolio.
Over the weekend, another Wall Street analyst, Joseph Moore from Morgan Stanley, issued a note that projected AMD's upcoming MI300 chip, which combines both CPU and GPU core "chiplets" with high-bandwidth memory on a single system-on-a-chip, could great expand AMD's AI opportunities. Moore now sees AMD perhaps garnering $400 million in AI revenue in calendar 2024, up from his initial estimate of $100 million, with a $1.2 billion opportunity if "everything goes right."
Now what
The debut of generative AI, as demonstrated by ChatGPT last November, seems to have sparked newfound enthusiasm for any tech stock with a compelling AI offering. AMD has made excellent progress over the years in taking market share away from Intel in both the PC and data center markets. Could AMD become a true competitor to Nvidia, which is seen as the dominant GPU provider, in the AI field?
Only time will tell, but it appears some Wall Street analysts and hedge fund managers think AMD has brighter days ahead.
