Zacks Analyst Blog Highlights Advanced Micro Devices, NVIDIA, Micron Technology, and Marvell Technology – July 22, 2024

For immediate publication

Chicago, IL – July 22, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Zacks Equity Research analysts cover the latest news and events affecting stocks and the financial markets daily. Stocks recently featured in the blog include: Advanced Micro Devices (AMD Quick QuoteAMD – Free report), NVIDIA (NVDA Quick QuoteNVDA – Free Report), Micron Technology (MU Quick QuoteHIM – Free Report), Marvell Technology (Quick quote MRVLMRVL – Free report) .

Here are the highlights from Friday’s analyst blog:

Do tighter U.S. restrictions on China make AMD a risky venture?

Advanced Micro Devices shares have fallen more than 14% over the past week. The chipmaker’s shares suffered heavy losses afterBloomberg news reports that the U.S. government reportedly plans to tighten restrictions on chip exports to China. The United States already bans sales of high-end chips above a certain performance threshold in China.

AMD shares fell 10.2% on July 17 following Bloomberg’s report. They fell another 2.3% to close at $155.77 on July 18. AMD shares have gained 5.7% year to date, lagging the broader Zacks Computer & Technology sector’s return of 20.8%.

The Biden administration’s tightening plan has sent shockwaves through the semiconductor industry. In addition to AMD, stocks Nvidia, Micron Technology, Marvell Technology and ASML fell 7.09%, 6.3%, 10.1%, and 12.7%, respectively, on July 17. On July 18, while NVIDIA and Marvell stocks saw a slight rebound, MU and ASML continued to decline, as did AMD.

Among these semiconductor barometers, Marvell has the largest exposure to China, with 45% of total revenue, followed by ASML, NVIDIA and AMD, which generate about 41%, 20% and 15% of revenue, respectively. Micron generates close to 10% of revenue from China. (Read more: Chip stocks fall as US plans to tighten China restrictions )

AMD stock suffers from strong competition

AMD is facing stiff competition from NVIDIA. Both stocks are investor darlings, fueled by the massive proliferation of AI that has created strong demand for the GPUs needed to power AI models.

However, a difficult macroeconomic environment and growing uncertainty about the upcoming presidential election do not bode well for AMD stock, given its smaller size and share of the GPU market. These factors have also made investors skeptical about its ability to dethrone NVIDIA.

NVIDIA’s strategy of releasing new AI chip models annually instead of the previous two-year update schedule is intensifying competition for AMD.

AMD’s near-term prospects are further hampered by weakness in its Embedded and Gaming segments.

In Q2 2024, Embedded and Gaming segment revenues are expected to decline by significant double-digit percentages year-over-year. Conversely, Embedded segment revenues are expected to remain flat, while Gaming segment revenues are expected to decline by significant double-digit percentages.

The Zacks Consensus Estimate for Embedded’s second-quarter revenues now stands at $845.89 million, which would represent a year-over-year decline of 45.7%. The consensus estimate for Gaming is $657.24 million, representing a massive decline of 165.4%.

Estimate revisions witness upward movement

AMD expects second-quarter 2024 revenue to be $5.7 billion (+/- $300 million). At the midpoint of the revenue range, this represents year-over-year growth of about 6% and sequential growth of about 4%.

The Zacks Consensus Estimate for second-quarter 2024 revenues is $5.71 billion, representing a year-over-year increase of 6.54%. The consensus estimate for earnings is 67 cents per share, up one cent over the past 30 days.

AMD’s Solid Portfolio Supports Long-Term Prospects

AMD’s long-term prospects are bright, given its heavy spending on AI chips.

Gartner predicts that AI semiconductor revenue will reach $71.25 billion in 2024, up 33% from 2023. In 2025, revenue is expected to reach $91.96 billion, up about 29% from 2024 estimates. More importantly, AI chip revenue from computational electronics is expected to total $33.4 billion in 2024, accounting for 47% of total AI semiconductor revenue.

This is good news for AMD, as its initiatives to expand its offerings position it well in the data center market as well as the growing AI-enabled PC market in the long term.

New offerings like the Instinct MI325X accelerator help expand AMD’s reach into the data center market. AMD introduced the Ryzen AI 300 Series, AMD’s third-generation mobile AI processors, and the Ryzen 9000 Series for laptops and desktops.

AMD is also tapping into its strong partner base. At Computex, Microsoft, HP, Lenovo, and Asus all unveiled new PCs powered by third-generation AMD Ryzen AI 300 Series processors and AMD Ryzen 9000 Series desktop processors.

The recently announced acquisition of Silo AI expands AMD’s AI ecosystem. The company has been on an acquisition spree to bolster its AI ecosystem. It has spent $125 million on a dozen acquisitions in the past 12 months. Nod.ai and Mipsology are other notable acquisitions in the recent past.

AMD shares overvalued

AMD’s Value Style Score of F indicates a stretched valuation at this point.

AMD stock is trading at a premium to the Zacks Electronics – Semiconductors industry. Its forward 12-month P/E of 35.54X is higher than the industry’s 34.56X.

Application

AMD’s near-term outlook is bleak, given weakness in its Embedded and Gaming segments amid stiff competition from NVIDIA. AMD has a Growth Style Score of D, making the stock unattractive for growth-minded investors.

AMD currently has a Zacks Rank #3 (Hold), suggesting that it would be prudent to wait for a more favorable entry point into the stock. However, investors who already own the stock can expect that the company’s growth prospects will be rewarding in the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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