Shares of Advanced Micro Devices (AMD 2.87%) rose 13.8% in January 2024, according to data from S&P Global Market Intelligence. The semiconductor designer reported robust fourth-quarter results near the end of the month, but investors saw those rosy numbers coming from a wile away and the report didn't move AMD's stock price very far. Instead, investors paid close attention to analysts updating their projections ahead of the financial report.
Analyzing the rocket fuel behind AMD's January jump
AMD's largest single-day jump last month fell on Jan. 16, as several Wall Street analysts lifted their price targets on the stock in unison. Citing a "second wave" of chip-buying to support advanced artificial intelligence (AI) systems, the investing pros saw great potential for sales of the new Instinct MI300X AI accelerator line.
The stock closed 8.3% higher that day, cementing an 18.9% gain for the week. That was two weeks ago and AMD's share price has stayed at roughly that level ever since.
Again, the earnings report showed strong results, but analysts and investors alike already had high expectations. Earnings jumped 12% higher on a 10% revenue increase, both on a year-over-year basis.
But AMD's management offered modest guidance for the quarter ahead and declined to set firm financial targets for the new fiscal year. Data center products like the MI300X should generate roughly $3.5 billion in total sales this year, up from a $2 billion target three months ago, but the goals were very fluid otherwise.
"We believe we will deliver strong annual revenue growth and expand gross margin, driven by the strength of our Instinct, Epyc, and Ryzen product portfolios," CEO Lisa Su said in the earnings call.
NASDAQ: AMD
Key Data Points
AMD's AI ambitions
Su also referred to AI as "a once-in-a-generation transition that will reshape virtually every portion of the computing market." The data center is the early canary in that coal mine, to be followed by more AI-related processing on PCs, phones, and embedded devices everywhere.
Archrival Nvidia is an early leader in the data center phase of this expansion process, but AMD has a foot in the door to all of these future AI chip markets. In particular, the Xilinx buyout made AMD an instant powerhouse in the embedded chip sector. Nvidia is not known for embedded chips, though old dogs certainly could learn new tricks over the years. But AMD's embedded prospects look excellent today, potentially setting the company up to dominate the embedded AI market a few years down the road. Stay tuned.
So AMD's stock isn't cheap these days, trading at 344 times trailing earnings after more than doubling its share prices in 52 weeks. On the other hand, the company holds a strong hand in the game-changing growth story of AI-related hardware, and the bulls may be on the right track. I don't recommend going all-in on any particular AI investment -- AMD included -- but AMD should be a strong contender if you're putting together a diversified AI portfolio today.
