Advanced Micro Devices Inc. (AMD) has been positioned as the frontrunner in the quest for the next Nvidia Corp., resembling a scaled-down version of its formidable competitor, according to analyst Ben Reitzes from Melius Research. In a note to clients on Friday, Reitzes emphasized the rapid evolution of AMD's artificial intelligence (AI) narrative, dubbing it a "mini-Nvidia" and significantly raising his price target and estimates.
Reitzes expressed the view that AMD's AI story is swiftly unfolding, particularly with its chip designed to optimize inferencing, and he believes the company is only just beginning to tap into the AI models entering production. Drawing parallels with Nvidia's performance in the previous year, he noted that the surge in buying activity could lead to surprising and substantial developments.
The analyst adjusted his price target for AMD shares to $265 from $192, now the second-highest on FactSet. This new target suggests a potential upside of over 25%. Reitzes also revised his estimates, projecting $5.2 billion in AI revenue for 2024, $9.5 billion for 2025, and $14 billion for 2026. These figures mark a significant increase from his earlier forecasts of $4.5 billion, $8.5 billion, and $12.5 billion, respectively.
Reitzes expressed optimism about AMD's MI300X chip, emphasizing its capability to capitalize on the growing demand for inferencing in AI. Inferencing, the phase where AI systems make predictions based on new data, is in its early stages, requiring substantial high-bandwidth memory that is progressively becoming more available each quarter.
However, Reitzes does not foresee AMD's ascent necessarily coming at the expense of Nvidia. He suggested that Nvidia's comprehensive approach, encompassing software and a full product portfolio with both training and inferencing solutions, does not need to be matched by AMD. He believes Nvidia's success contributes to expanding the market and fostering awareness, ultimately benefiting AMD and other players in the industry. Reitzes recommended investors to retain their Nvidia shares.
The total addressable market for AI accelerators appears substantial, with market researchers estimating it to be around $250 billion by 2027, according to IDC. In contrast, AMD's management envisions an even larger figure of $400 billion. Reitzes acknowledged that AMD's estimate is gaining credibility, especially when considering Nvidia's performance.
Despite Reitzes' optimistic analysis, AMD shares experienced a 1.9% decline in Friday's session, a cooling down of the chip sector rally, while Nvidia's stock dipped by 5.6%.
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