The Potential for Market Leadership
In the world of cloud computing, Advanced Micro Devices (AMD) is making waves. KeyBanc analyst John Vinh sees AMD’s trajectory heading towards the pinnacle of the industry, maintaining an Overweight rating on the company with a price target of $270.
February proved fruitful for AMD, with Genoa’s growth remaining robust. AMD processor instances saw a +1% month-on-month (M/M) increase and a significant +24% year-on-year (Y/Y) surge, compared to January’s figures (+1% M/M, +35% Y/Y).
Of particular note was the continued strong growth of Genoa instances, up by +19% M/M, primarily spearheaded by Amazon.Com Inc’s AWS, following a +13% M/M growth in January. Rome instances also held their ground, showing a +1% M/M increase and a solid +14% Y/Y growth.
Vinh’s price target of $270 for AMD is based on a 30x multiple of his 2025 EPS estimate of $9.05. Currently, AMD is trading at 21x Vinh’s 2025 EPS estimate, and 38x the 2025 consensus EPS estimate when compared to its peers, which average a 34x consensus 2025E P/E multiple.
Contrary to AMD’s positive performance, Vinh’s February findings revealed a downtrend in traditional server demand and cloud instances in China, marking a 1% M/M decrease from January’s 1% growth M/M.
Challenges in the Cloud Sector
Alibaba Group Holding Limited’s significant 11% reduction in M/M instances highlighted the cloud sector’s weakness in China. On a company level, Nvidia Corp and Arm Holdings Plc remained stable M/M, while Intel Corp experienced a 1% decline M/M.
Intel’s Sapphire Rapids instances slowed to 2% M/M growth after a massive 50% M/M surge in January. Nvidia’s GPU growth stayed flat M/M, echoing its previous performance, as U.S. cloud service providers shifted capital expenditure towards internal generative AI workloads.
ARM’s server growth plateaued month-on-month versus a minor 1% M/M increase in January. The latest cloud tracker data suggests a moderately positive forecast for AMD, with a neutral impact expected on ARM, Intel, and Nvidia.
Market Implications
Investors looking to capitalize on AMD’s success can consider the AOT Growth And Innovation ETF and the Invesco PHLX Semiconductor ETF for exposure to the company’s performance and potential for market leadership.
Price Action: AMD shares saw a 3.20% increase, trading at $193.05 at the last check on Friday.
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