AI trade faces key test before Nvidia earnings: AMD's analyst day

Advanced Micro Devices is hosting its first financial analyst day in three years, facing high investor expectations driven by its AI partnerships and significant stock appreciation. Analysts are primarily focused on gaining clarity regarding AMD's updated total addressable market (TAM) for AI, its projected share in the AI GPU market, and new financial targets, including sales growth and gross margins. Key expectations include a potential increase in the AI accelerator TAM to $750-850 billion by CY28 and a double-digit AI GPU market share, with the event anticipated to provide crucial insights into AMD's AI strategy and long-term earnings power.

Analysis

Advanced Micro Devices is hosting its first financial analyst day in three years, drawing significant investor attention following a 104% year-to-date stock surge fueled by high-profile AI partnerships with OpenAI and Oracle. Despite a recent 5% stock slump post-Q4 margin guidance, analysts maintain a bullish outlook, with a consensus price target of $267.02 implying approximately 9% potential upside. The event is critical for providing clarity on AMD's long-term AI strategy and financial trajectory.

Analysts are primarily focused on gaining greater visibility into AMD's total addressable market (TAM) for AI, its projected share in the AI GPU market, and updated financial targets. Bank of America anticipates AMD will raise its AI accelerator TAM outlook to $750-850 billion by CY28, up from a prior >$500 billion, and target a double-digit share of the merchant AI GPU market, equating to $55-65 billion in GPU sales. Jefferies is even more bullish, expecting the AI accelerator TAM to be raised to $1T+.

BofA also projects overall sales growth of 25-30% CAGR and gross margins of 53-55%, a slight decrease from prior >57% due to the lower-margin GPU business, but expects this to be offset by lower operating expense intensity at 21-22%. While Bernstein acknowledges AMD's strengthened competitive position, they caution that expectations are significantly higher than at the 2022 analyst day, which did not meet projections, making management's commentary on future gross margins for AI products a key focus for EPS assumptions.

Key Decisions for Investors

• Investors should closely monitor AMD's updated AI TAM and market share targets, as these will significantly influence long-term growth projections and valuation models.
• Evaluate the company's revised gross margin guidance for AI products and operating expense intensity, as these metrics are critical for assessing future profitability and potential EPS revisions.
• Consider potential stock volatility around the analyst day, given the high investor expectations and the historical performance of prior analyst events, and assess any new customer partnerships or product roadmaps for competitive advantages.