AMD: Investor Day Touts Tremendous AI Growth with Steady Margins

Key Morningstar Metrics for Advanced Micro Devices

• Fair Value Estimate: $270.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

Advanced Micro Devices AMD hosted an investor day that featured updated revenue growth and financial targets. These include growth in the next three to five years of 80% in data center artificial intelligence products, 60% in all data center products, and 35% for total AMD. The firm’s adjusted gross margin target is now 55%-58%, ahead of 54% currently.

Why it matters: AMD increased its bullishness on the AI market, both in total (targeting a $1 trillion-plus market by 2030) and for the company (expecting 10%-plus market share). This implies $100 billion in AI revenue over the next three to five years, which exceeds our expectations.

• Meanwhile, AMD is targeting modest gross margin expansion, which is encouraging to us, as we were concerned that AI revenue might be a bit dilutive as the company strives to gain market share. Between growth and healthy margins, AMD is targeting $20 of earnings per share by 2030.
• AI growth seems plausible to us and is based on its customer conversations. AMD has public partnerships with OpenAI, Oracle, and Meta. The company hinted that it is in deep discussions with other leading hyperscalers, sovereign entities, and AI-native firms.

The bottom line: We raise our fair value estimate for narrow-moat AMD to $270 per share from $210, as we again lift our AI revenue estimates for the firm. We retain our Very High Uncertainty Rating, as the AI market continues to shift rapidly. Shares now appear a little undervalued to us.

• We now model a 31% revenue compound annual growth rate for AMD through 2029, up from our prior estimate of 26%. Our data center and AI GPU CAGRs now rise to 42% and 62%, respectively, up from 37% and 55%. Yet we still have some modest conservatism compared with AMD’s targets.
• Even though the AI industry is computing-constrained, and management addressed these concerns head-on, we’re still cautious that industry funding and energy/power generation might cause firms like OpenAI to grow a bit more slowly than visualized.