It appears that after Nvidia (NVDA), Advanced Micro Devices (AMD) is the next to re-enter into an agreement to resume sales of its chips to China. After CEO Lisa Su met with Chinese Commerce Minister Wang Wentao in Beijing last week, reports emerged that Chinese tech giant Alibaba (BABA) was considering ordering some MI308 GPUs from AMD. According to this report, Alibaba could order between 40,000 and 50,000 of these GPUs. This could imply a revenue windfall of between $600 million and $1.25 billion for AMD.
But before taking action, there are a few unpleasant facts that need to be considered. First, although the United States has approved the sale of Nvidia’s H200 chips to China, Chinese regulators have not yet given approval. So, the chances of AMD getting approval are also low at this point. Second, Alibaba is itself a chipmaker, although its chips are more of the ASIC variety than AMD’s general-purpose chips. This means these have broader use cases than Alibaba’s chips, which are optimized for its cloud-native ecosystems and inference workloads.
However, amidst this evolution, where does AMD stand as an investment option today? This should be quite high. Let’s see why.
With a market capitalization of around $350 billion, AMD appears to be a minnow ahead of its larger peer, Nvidia. However, based on stock price action, AMD stock, up nearly 78%, has significantly outperformed Nvidia’s 37.1% rise this year. But AMD is not just a short-term phenomenon; the company has been experiencing healthy revenue and profit growth for some time now.
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AMD has put together a strong five-year run, growing its revenue and earnings at compound rates of 29.94% and 28.93%. The most recent quarter fits perfectly into this trend, with results above Wall Street figures.
Third-quarter sales reached $9.25 billion, 36% higher than the previous year. The core data center segment reported revenue of $4.3 billion, a growth of 22% from last year. Customers and gaming, however, saw the biggest increase, rising 73% on a year-over-year basis to $4 billion.
Meanwhile, EPS rose 30% during the same period to $1.20, beating the consensus of $1.17 and extending the company’s beat streak to four consecutive quarters.
Cash flow also stood out. Operating cash flow soared to $1.8 billion, nearly three times the $628 million reported in the same quarter last year. In total, AMD ended September with $4.81 billion in cash, well outpacing the $873 million in short-term debt and $2.35 billion in long-term debt.
However, AMD continues to trade at sky-high valuations relative to industry averages. Its forward P/E, P/S, and P/CF of 54.21, 10.30, and 54.12 are all above the industry medians of 24.37, 3.40, and 20.36, respectively.
Since my previous analysis on AMD, ahead of the company’s Financial Analyst Day event on November 11, the company’s stock is down 10.3%. However, the case for investing in this sector may have only grown stronger amid all the ambitious goals management intends to achieve in the coming years. First, CEO Lisa Su says the data center market is expected to reach $1 trillion by 2030, an increase from her previous prediction of a $500 billion market by 2028.
Meanwhile, on a company-specific basis, AMD has targeted revenue CAGR of >35%, operating margins of >35%, and annual EPS of $20 over the next 3-5 years, with data center AI revenue exceeding 80% CAGR over the same period. The goals may seem a bit lofty, but Lisa Su has taken the plunge repeatedly for over a decade now, with the stock price increasing more than 80 times during her tenure, creating enormous wealth for shareholders.
Additionally, AMD’s GPUs aren’t the only ones that accelerate; the full stack around them is growing rapidly, moving towards complete rack-level configurations like Helios, MI400 and MI450. Software is also keeping pace, with ROCm 7 making it easier to move workloads between systems. Notably, the MI500 range is already planned for 2027, so the roadmap seems busy for years to come.
Outside of pure accelerators, AMD’s upcoming Venice processors and networking equipment open up new avenues for growth within data centers.
Overall, what really matters is how AMD has spread its bets across all platforms. CPUs, GPUs, adaptive chips, and networks all connect as parts of a single machine, where nothing is isolated. This setup reduces the risk of any changing trends and allows the company to shift gears quickly as AI designs change.
Thus, analysts have rated the stock as a “moderate buy” consensus, with an average target price of $288.87. This indicates an upside potential of approximately 34.2% from current levels. Out of 43 analysts covering the stock, 28 have a “Strong Buy” rating, three have a “Moderate Buy” rating and 12 have a “Hold” rating.
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As of the date of publication, Pathikrit Bose did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. This article was originally published on Barchart.com
