A New Bull Says AMD's Stock Can Soar 40%, Even as NVIDIA Remains Dominant

In the realm dominated by Nvidia Corp., Advanced Micro Devices Inc. still holds potential for substantial growth, according to HSBC analyst Frank Lee. Lee's Tuesday report upgraded AMD shares from hold to buy, accompanied by a revised price target of $225, indicating a potential upside of around 40% from current levels.

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Despite AMD shares experiencing a modest 9% increase so far in 2024, they have not witnessed the same level of surges as other stocks linked to artificial intelligence hardware. For instance, Nvidia shares have soared by 74%, Broadcom Inc. shares have seen a rise of 17%, and Micron Technology Inc. shares are up by 42%.

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AMD disappointed investors last quarter with its projection of over $3.5 billion in 2024 revenue from AI graphics-processing units, falling short of the elevated expectations reaching into the $6 billion range.

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Recent weakness in AMD's stock, down by 16% in the past month, can be attributed in part to a reassessment of the landscape for graphics-processing units serving AI use cases, following Nvidia's announcement of its new Blackwell chip lineup. Nvidia's strategy of pricing the hardware to enhance accessibility and foster adoption was perceived as a potential threat to AMD, which trails behind the market leader despite having its own AI hardware.

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Lee believes that Nvidia is unlikely to monopolize the AI GPU market entirely, forecasting that AMD will secure 10% of the market share by 2025. This projection implies potential AI GPU revenue of $12.3 billion, compared to the consensus estimate of $9 billion. In a bullish scenario, AMD could capture 15% of the market share by 2025, translating to revenue potential of $18.5 billion.

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Regarding product competitiveness, Lee notes that AMD's MI300 appears to compete more directly with older Nvidia hardware rather than the new Blackwell lineup. He anticipates that the introduction of higher ASP (average selling price) products like MI350/M375/MI40 will pose significant competition to Nvidia's GB200.

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Previously skeptical about the prospect of two major players in the AI accelerator market, Lee believed Nvidia's first-mover advantage would establish a monopoly. However, he now doubts that the market will prove monopolistic and sees ample room for AMD to carve out a meaningful share. Notably, AMD has already received MI300X orders from major players like Microsoft Corp., Meta Platforms Inc., and others.

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