Advanced Micro Devices AMD is embarking on a bold new journey, solidifying its stronghold in the data center AI realm through the groundbreaking acquisition of ZT Systems for approximately $4.9 billion in cash and stock. Delving deeper, this transformative deal includes a potential additional payment of up to $400 million upon hitting designated milestones post-transaction completion.
Supreme horizon of the first half of 2025 marks the anticipated closing window for this monumental agreement, propelling AMD’s prowess in the data center AI sector exponentially forward. ZT Systems, a titan in catering to premier hyperscalers via its AI and diversified compute infrastructure suite, is destined to synergize harmoniously with AMD’s strategic vision.
By seamlessly integrating the robust offerings of ZT Systems, AMD is gearing up to unveil optimized rack-scale solutions in the burgeoning data center AI accelerator domain, projected to burgeon to approximately $400 billion by 2027.
The astute minds at AMD anticipate this strategic maneuver to yield accretive outcomes on a non-GAAP basis by the curtains of 2025.
AMD’s Ascendancy Fueled by Data Center Demand
Moving steadfastly on the path to glory, AMD’s stocks have soared beyond the 37% mark since the denouement of its second quarter in 2024 (Jul 30), effortlessly eclipsing the broader Zacks Computer & Technology segment’s growth rate of 28.5%.
Illuminated by the stellar performance of its Data Center segment, AMD has captivated investor interest. The resplendent second quarter of 2024 witnessed a remarkable 114.5% year-over-year spike in Data Center revenues, swelling to a monumental $2.83 billion, constituting a lion’s share of the total revenue pie. Building on this crescendo, sequential revenue escalation of 21% further accentuated AMD’s upward trajectory.
Eclipsing the stratosphere, quarterly revenues from MI300 in the data center AI echelon surpassed $1 billion for the very first time, underscoring the meteoric rise of AMD in this landscape.
A succession of strategic acquisitions, totaling a handsome $125 million over the past year, underscores AMD’s resolute commitment towards fortifying its AI ecosystem. Noteworthy mentions encompass Nod.ai, Mipsology, and the recent accompaniment of Helsinki-based Silo AI to AMD’s illustrious coterie.
AMD’s Future in a Glance
With a riveting tale of racing against time, AMD is resolutely treading on the path to bridge the technological chasm with the formidable NVIDIA NVDA. NVIDIA’s shares have spiraled nigh 177% post the 2024 Jul 30 milestone.
Both AMD and NVDA stand as the paragons of investment allure, basking in the radiance of AI’s phenomenal ascent that has galvanized a surge in demand for GPU chips essential for empowering AI frameworks.
Delving into the vertical of data center AI, AMD’s relentless expansion spate is poised to position itself as a formidable challenger not solely in the data center domain but also in the burgeoning AI-enabled consumer PC fragment. A trove of new offerings, typified by the Instinct MI325X accelerator, is heralding the dawn of a new era for AMD.
Nonetheless, AMD grapples with the exigencies of a tempestuous macroeconomic terrain and the looming shadows of uncertainty cast by the forthcoming Presidential elections. With a comparably diminutive stature and market share in the GPU universe relative to NVIDIA, AMD is engulfed in a tale of perennial competition.
Forecast and Stock Valuation
Shining a beacon on the horizon, AMD anticipates third-quarter 2024 revenues to tip the scales at $6.7 billion (+/-$300 million), signaling a resonant 16% annual growth trajectory coupled with a 15% sequential stride at the mid-point of the revenue spectrum.
Reflecting the analytic prism, the Zacks Consensus Estimate for third-quarter 2024 revenues stands at $6.71 billion, projecting a salient 15.71% annual augmentation. The consensus figures for earnings are perched at 90 cents per share, undergoing a 3.2% descent over the preceding 30 days yet signposting a robust 28.57% year-over-year uptick.
AMD’s Valor Amid Market Dynamics
As dawn breaks on the valuation frontier, AMD’s stock is perched in the zone of overvaluation, with the Value Score of F outlining a state of stretched valuation at this juncture of time.
Streaking ahead at a premium pace, with a forward 12-month P/S ratio of 8.45X under its wing, AMD’s lofty stance juxtaposes starkly with the Zacks Computer and Technology sector’s P/S ratio of 6.44X.
Closing Insights
As the curtains unfurl on AMD’s immediate prospects, a murk veils the Embedded and Gaming segments, braving the storm of competition from NVIDIA. Brandishing a Growth Score of D, AMD’s appeal to growth-centric investors remains shrouded in some degree of unattractiveness.
Yet, threaded within the fabric of this journey lies AMD’s expanding portfolio, buoyed by the acquisitions of Silo AI and ZT Systems, promising a radiant trajectory for top-line growth.
At present, AMD holds a Zacks Rank #3 (Hold), beckoning astute investors to bide their time for an opportune moment to embark on this thrilling voyage. For the faithful investors who already epitomize ownership in the AMD galaxy, the journey ahead is imbued with promises of growth and valor in the long haul.