Recent trading sessions have seen billions in losses across the semiconductor sector, as many well-known chipmakers’ stocks, including Advanced Micro Devices (NASDAQ: AMD), have fallen below their 50-day simple moving averages (SMAs) amid a broader bear market caused by sector rotation.
The latest close saw AMD stock at a $138.44 valuation after a 0.94% loss in the previous trading session, which extended a pullback of 9.35% from the last five trading sessions.
However, on July 31, pre-market trading showed gains of 9.25%, setting the price at $149.88 at the time of writing after a successful Q2 earnings report that beat Wall Street estimates.
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Impressive Q2 earnings report from AMD
In its Q2 2024 earnings report released on July 30, the company posted adjusted earnings per share (EPS) of $0.69, slightly surpassing expectations of $0.68. Revenue came in at $5.84 billion, exceeding estimates of $5.72 billion and reflecting a 9% year-over-year increase.
For Q3 2024, the company provided guidance with projected revenue ranging between $6.4 billion and $7.0 billion, aligning closely with the estimated $6.58 billion. However, the forecasted non-GAAP gross margin of approximately 53.5% raised some concerns.
Other key financial metrics included a gross margin of 49%, below the expected 53%, while the non-GAAP gross margin met expectations at 53%. Operating income stood at $269 million, significantly lower than the estimated $1.25 billion.
Commenting on the results, CEO Dr Lisa Su noted:
“We delivered strong revenue and earnings growth in the second quarter, driven by record Data Center segment revenue. Our AI business continued accelerating, and we are well-positioned to deliver strong revenue growth in the second half of the year, led by demand for Instinct, EPYC, and Ryzen processors.”
Wall Street was quick to react to AMD’s Q2 report
Wall Street analysts closely watched AMD’s Q2 report, keen to learn how this semiconductor producer performed during the previous quarter and what its outlook for the next one was.
On July 31, Truist Securities analyst William Stein lowered AMD’s price target from $162 to $156 while maintaining a “hold” rating on the stock.
Stein commented on AMD’s recent performance, noting that the company exceeded Q2 expectations but provided mixed guidance for Q3.
He emphasized that positive trends in the Datacenter and Client segments will likely shape investor sentiment. Additionally, Stein pointed to management’s upward revision of MI300 sales projections from $4 billion to $4.5 billion this year, along with the growing traction of the MI300 product line, as constructive developments.
However, Stein expressed longer-term concerns regarding AMD’s position in the AI market, which he believes may remain limited compared to Nvidia’s (NASDAQ: NVDA) solutions.
Goldman Sachs believes the best is yet to come for AMD stock
On the same date, Goldman Sachs reiterated its “buy” rating for Advanced Micro Devices stock and raised its price target from $137 to $157.
This update was driven by AMD’s growing market presence, particularly in the Data Center GPU segment, with the company expected to achieve significant revenue growth in the coming years due to the adoption of its MI300 GPUs.
Goldman Sachs’ bullish outlook is also supported by AMD’s expanding gross margins and anticipated strength in its server CPU business, which includes upcoming products like EPYC processors.
The overall sentiment on Wall Street regarding this chipmaker stock remains bullish, with a “strong buy” rating based on 35 ratings. Of these, 29 recommended a “buy,” 6 opted for a “hold,” and none advised a “sell.”
AMD’s average price target is $194.93, reflecting a potential 40% upside from the current price.
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