AMD: We Maintain Fair Value Estimate as ‘Advancing AI’ Event Highlights Strong Road Map

Key Morningstar Metrics for Advanced Micro Devices

• Fair Value Estimate: $145.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

Advanced Micro Devices’ AMD “Advancing AI” event on Oct. 10 highlighted some solid milestones. In our opinion, the company continues to progress in AI across a variety of products: processors (both CPUs and GPUs), software, and networking hardware. On the whole, the announcements are consistent with our thesis that AMD will likely carve out a piece of the AI semiconductor and hardware pie over time but is unlikely to displace industry leader Nvidia NVDA anytime soon. We maintain our fair value estimate of $145 per share and narrow moat rating for the company, and we view its shares as modestly overvalued.

Our biggest industrywide takeaway is that AMD increased its forecast for the AI accelerator industry to $500 billion in revenue in 2028, up from its prior forecast of $400 billion in 2027. This may have underwhelmed some investors, as we saw AMD’s stock sell off about 3% immediately after the announcement. However, a 25% growth rate in 2028 wouldn’t disappoint us. AMD’s line of sight into data center buildouts suggests no AI chip bubble is imminent. Further, we’ve received many questions about how large the AI chip market might be at maturity. Although we’re confident the industry won’t grow 25% per year forever, it might not decelerate into a flattish market in the next five or 10 years either.

We were also pleased with AMD’s disclosure that it has a 34% revenue share of server processors, highlighting its gains over Intel INTC in recent quarters. Given Intel’s near-term struggles, we anticipate these share gains will continue. Such gains should be gradual over the next few years, but if Intel can’t deliver on its manufacturing roadmap, there’s a bullish scenario wherein they accelerate rapidly.