Here's why AMD's stock was just dubbed a top pick

By Emily Bary

Piper Sandler likes the stock's relative valuation and the company's opportunity to benefit from the easing of supply constraints on its AI offerings

Advanced Micro Devices Inc. has been on the outside looking in lately - at least from a stock-market perspective.

Shares of the chip company are down 14% over the past three months, and they've risen only 5% so far this year, while the S&P 500 SPX is up 15% over the course of 2024 to date. And it's not just that AMD shares (AMD) are lagging those of powerhouse Nvidia Corp. (NVDA): Other large chip companies, including Broadcom Inc. (AVGO) and Micron Technology Inc. (MU), have seen recent artificial-intelligence benefits that have sent those stocks climbing meaningfully.

See also: Nvidia is one of the 'three horsemen of AI.' Here are the others.

But Piper Sandler analyst Harsh Kumar is upbeat about the near future, elevating AMD shares to "top pick" status following recent meetings with the company's management team.

AMD's stock is up 7.4% in morning trading Thursday and on track for its largest single-day percentage gain since it increased 9.1% on Feb. 29. The stock is among the largest gainers in the S&P 500 SPX on the day.

"Overall, we walked away extremely impressed with the strategy as well as the competitive positioning for the MI series of products," Kumar wrote, referring to the company's AI accelerator lineup. "In addition, we feel there are additional tailwinds set to come for both the server and PC businesses."

AMD "currently has 100+ customers in the AI accelerator space, with most of them ramping" in the second half of the year, he added.

Read: AMD's stock hasn't been feeling the love. Here's why that could change.

With that backdrop, AMD has "bright prospects moving into the back half of the year," especially considering that the company's embedded business is expected to trough in the June quarter, according to Kumar.

Investors, though, are mostly focused on AI, and Kumar likes the company's positioning there. While the company faced supply constraints on its AI accelerator products in the first half of the year, "these constraints are expected to be alleviated to a significant degree" in the second half of the year, notably on the memory side.

"At this time, MI300 is performing very well with an expected ramp to greater than $4 billion this year," Kumar wrote. He's intrigued by the company's potential to penetrate the sovereign-AI market, which would allow it to capitalize as countries rush to build their own AI systems. AMD currently "has no exposure to this segment given its very recent entry into AI accelerators," Kumar wrote.

He has an overweight rating and $175 target price on AMD shares, with that target about 13% above current levels. He and his team "like AMD's valuation here relative to peers in the compute space."

Read: Micron's stock extends rally as analyst expects 'only positive news'

-Emily Bary

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06-20-24 1116ET

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