Shares of Advanced Micro Devices (AMD.O) rose by 8% on Wednesday, following a positive sales forecast for AI chips. This indicates that the company is making progress in its efforts to catch up with market leader Nvidia (NVDA.O). Despite concerns about a disappointing fourth-quarter forecast, the optimism surrounding AI chip sales has led to an increase in market value of nearly $13 billion, based on the current share price of $106.41.
On Tuesday, CEO Lisa Su provided a sales forecast for the MI300 chips for the first time, which are designed to compete with Nvidia’s advanced H100 chips. She projected annual sales of over $2 billion and raised the chip’s revenue expectations for the current quarter by $100 million. If achieved, this would make the MI300 the fastest product in AMD’s history to reach $1 billion in sales. Analysts at TD Cowen believe that reaching this milestone is an important step in establishing AMD as the clear second source to Nvidia in the AI accelerator market.
Furthermore, Su announced that the MI300 chips have secured commitments from multiple large hyperscale customers, referring to major tech and cloud computing companies. Despite AMD’s shares gaining 61% this year, they still lag behind Nvidia’s impressive 184% rally.
However, due to a conservative forecast and weakness in several of AMD’s markets, at least 18 analysts have lowered their price targets for the stock. This has resulted in a median view of $130, according to LSEG data. Morningstar analyst Brian Colello commented that the forecasts were below their prior estimates, but also noted that they could potentially be conservative.
While the PC market is showing signs of recovery, the weak gaming market and declining demand for programmable chips used in industries such as wireless communications, healthcare, and automotive have been a hindrance to AMD’s performance.
In conclusion, AMD’s positive sales forecast for AI chips has boosted investor confidence and demonstrated progress in catching up with Nvidia. However, the company still faces challenges in certain markets, leading to a conservative forecast and price target reductions by analysts.
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