AMD Receives Vote of Confidence from Elon Musk for AI Chip Potential

by Warren Seah

AMD received a strong vote of confidence recently when Elon Musk, the CEO of Tesla, expressed his intention to purchase their chips for the company’s artificial intelligence (AI) endeavors. This endorsement from Musk has invigorated Wall Street’s belief in AMD’s ability to excel in the AI chip market.

In premarket trading on Monday, AMD stock surged by 1.8% to reach $180.44. This positive momentum was reminiscent of the after-hours trading surge on the previous Friday when Musk announced on social media platform X that Tesla would be procuring AMD chips. Additionally, Tesla plans to invest over $500 million on Nvidia hardware this year.

Although Musk did not disclose an exact amount for AMD chip purchases, this news is particularly promising for the MI300 data-center chips. Known as AMD’s primary AI hardware offering, these chips stand to benefit greatly from Tesla’s support. And there might be even more reasons to be hopeful.

On Tuesday, AMD will release its fourth-quarter earnings report, with a particular focus on the company’s guidance. AMD’s CEO, Lisa Su, previously predicted that the MI300 chip would generate approximately $2 billion in revenue by 2024. However, Susquehanna analyst Christopher Rolland believes this projection could be revised upwards to at least $3 billion, with a potential for even reaching $6 billion.

Rolland stated in a research note on Monday that, according to experts, AMD’s software capability has significantly improved its competitiveness compared to Nvidia’s CUDA software, which had previously been a hindrance for AMD. In light of these positive developments, Rolland has increased his target price for AMD stock from $170 to $210, maintaining a Positive rating.

In conclusion, the endorsement from Elon Musk and the anticipation surrounding AMD’s fourth-quarter earnings has led to increased confidence in the company’s AI chip potential. The future looks promising as AMD continues to enhance its software capabilities, positioning itself as a formidable competitor in the AI hardware market.

AMD’s Optimism and Potential for Growth

Rolland isn’t alone in his optimism about AMD’s future prospects. Stifel analysts, led by Ruben Roy, recently raised their target price on AMD to $200 from $170. They maintained a Buy rating on the stock and highlighted the potential for the MI300 chip.

While Stifel’s assumption for the MI300 chip aligns with AMD’s guidance for 2024 at around $2 billion, they believe that improved supply and strong ongoing demand could lead to significant upside as 2024 progresses.

Analysts’ target prices suggest a robust trailing price-to-earnings multiple of at least 75 times for AMD. According to a FactSet consensus, AMD is expected to report full-year earnings of $2.66 a share for 2023. However, this multiple could compress rapidly if AMD solidifies its position as the leading alternative AI chip supplier to Nvidia. FactSet predicts that AMD’s annual earnings will nearly double to $5.23 a share in 2025.

In contrast to AMD’s positive outlook, its peer Intel faced disappointment last week after providing a lackluster revenue forecast for the current quarter. This outlook indicated that Intel had made limited progress in the AI data-center market. As a result, Intel shares fell by 12% last Friday.

In premarket trading on Monday, Intel shares only managed a marginal 0.4% increase, failing to recoup their losses. In comparison, Nvidia shares experienced a 0.7% rise.

It seems that AMD is poised for growth and has the potential to outperform its competitors. As the company continues to enhance its chip offerings and tap into the AI market, it could be on track for a prosperous future.

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