Analysts at Susquehanna are sounding a note of caution ahead of Advanced Micro Devices’ (NASDAQ: AMD) first-quarter earnings report due on Tuesday after the market close. The firm maintained a positive rating on the shares but lowered its price target from $200 to $185. The analysts expect the company to issue weaker guidance in the upcoming report that could limit the stock’s near-term upside.
Investors are eagerly awaiting news from AMD’s data center business, where revenue surged 43% in the fourth quarter of 2023. The company has high expectations for its data center graphics processing units (GPUs), which are in high demand for artificial intelligence (AI) applications, with a projected revenue of around $3.5 billion this year.
However, other segments of AMD’s business are expected to remain soft. A weak year for PC shipments led to a 25% decline in revenue for the client segment, including sales of Ryzen desktop processors. The gaming and embedded segments also saw revenue decreases, with the embedded business not expected to recover until the second half of 2024.
Despite the cautious outlook, AMD shares trade at a forward price-to-earnings ratio of 44, higher than Nvidia’s 35 forward P/E. Investors will be looking for a strong outlook for 2024 to justify the stock’s valuation. If the stock hits the analysts’ price target, it will likely be due to increased demand for its data center GPUs and expectations for a recovery in the client segment later this year.
In the long term, AMD has a lucrative opportunity to supply chips for AI PCs and data centers, making the stock a compelling buy on any weakness following the earnings report.