AMD: Rumors drove AI comeback, but what does 2023 really look like?

AMD fell 6% last week after the company released its first-quarter report. But recovery followed promptly.

The rapid rebound came amid rumors that Microsoft would help fund the semiconductor company’s foray into processors for artificial intelligence, or AI workloads. Microsoft immediately denied this, so the question arises:

What will happen in the rest of 2023?

AMD’s business slowdown will intensify in the second quarter until the Xilinx acquisition is fully completed. AMD expects second-quarter revenue to decline by 15% to 24% year over year (and flattening sequentially), but expects adjusted gross margin to be around 50%, suggesting the company is growing maintains its pricing power in this difficult market. So AMD hasn’t bottomed out on its cyclical decline yet, but Wall Street expects revenue to gradually stabilize in the second half of the year and be about flat for the full year.

Appropriately rated

At around $90, AMD is trading at 28 times this year’s adjusted earnings. Intel, on the other hand, which is growing at a slower pace and faces more near-term headwinds, still trades at 66 times forward earnings. And while Nvidia is also growing a little faster than AMD, it’s significantly more expensive at 60 times the expected profit. In other words, AMD isn’t exactly cheap, but compared to its closest peers and its longer-term growth rates, the company appears reasonably valued.

We think AMD is worth a look at these levels as the company is well ahead of Intel with cheaper and more advanced chips and can still compete with Nvidia in the gaming market with cheaper GPUs and bespoke APUs for consoles. If the jump above 100 dollars succeeds, the next wave of speculation begins on the turnaround.