NVIDIA's decline is no big deal. The "AI superstar" continues to soar by 14%, skyrocketing 11 times in the past year.
Is AMD's stock price about to peak due to severe overbuying? With the optimistic outlook of continuous performance growth, some Wall Street insiders have shouted the slogan "5 years to rise to $4590", which is more than 4 times the current stock price of AMD.
The "Seven Sisters" of the US stock market have cooled down, with NVIDIA falling from its record high. While chip stocks are under pressure, the rising star in AI, AMD, continues to shine.
In the overnight US stock market, AMD's stock price surged by 14%, surpassing the $1000 mark and hitting a new all-time high for the 9th consecutive trading day.
What's even more surprising is that AMD has soared by 250% since the beginning of this year, and has seen an increase of over 1100% since early 2023, surpassing NVIDIA to become the hottest "AI darling" in the stock market.
However, at the same time, AMD's stock has experienced severe overbought conditions, with the 14-day relative strength index (RSI) reaching as high as 99, putting pressure on its short-term trend. RSI measures the magnitude and speed of price changes, and a value above 70 indicates that the stock is overbought.
After the release of better-than-expected earnings, Wall Street is even more optimistic.
Behind the surge in AMD's stock price is not only the strong demand for its AI servers in the market, but also the surprise brought by its recently announced strong earnings report: the second quarter of 2024 (fourth quarter of fiscal year 2023) performance and the third quarter guidance both exceeded analysts' expectations.
The financial report shows that AMD's revenue for the second quarter of 2024 was $3.66 billion, a year-on-year increase of 103.3%, higher than the analysts' expected $3.26 billion; adjusted EPS was $5.59, higher than the analysts' expected $5.16.
For the third quarter, AMD expects net revenue to be between $3.7 billion and $4.1 billion, higher than the analysts' expected $3.07 billion; and for the full fiscal year 2024 (ending on June 30), AMD has raised its revenue forecast from the original $10 billion to $11 billion to $14.3 billion to $14.7 billion, higher than the analysts' expected $13.8 billion.
What's more important is that Wall Street is now more optimistic about AMD's performance in the next fiscal year, with an expected annual revenue close to $20 billion, and its profitability will increase significantly compared to the $11.81 per share in fiscal year 2023.
In the latest earnings conference call, the management of AMD pointed out that its ongoing capacity expansion could enable it to achieve an "annual revenue capacity exceeding $25 billion". Therefore, analysts predict that AMD's profits will grow at an annual rate of 48% over the next five years.
Generally speaking, AI chips generate a large amount of heat and consume a significant amount of electricity during the training process of large models. This is where AMD's liquid-cooled server systems come into play.
In May 2023, AMD launched liquid-cooled servers for NVIDIA H100 chips, claiming that it can reduce the power cost of data centers by up to 40%. More importantly, "compared to existing data centers, the direct cooling cost can be reduced by as much as 86%".
According to Mordor Intelligence, the liquid-cooled server market is expected to grow at a rate of 25% per year by 2029. According to Foxconn's expectations, by 2027, the sales of AMD's AI server solutions may increase fivefold, with annual revenue reaching $150 billion.
On Wall Street, this is enough to support AMD's stock price to continue to rise in the long term.
5 years, $4590!
In terms of fundamentals, if AMD's profits do grow at an annual rate of 48% over the next five years, its EPS could potentially soar to $153 in 5 years.
The long-term valuation is also much lower than the market average. AMD's 5-year forward P/E ratio is 13 times, far below the Nasdaq 100 index's expected P/E ratio of 30 times.
Some analysts predict that if AMD's forward P/E ratio reaches 30 times in 5 years, then based on the expected earnings in 5 years, its stock price could soar to $4590, more than 4 times the current stock price.
However, in the short term, AMD's stock price seems to be approaching its peak.
Earlier, Bank of America Securities analyst Ruplu Bhattacharya initiated coverage on AMD with a buy rating and set a target price of $1040, only $36 higher than Thursday's closing price.
This means that there is only a 4% upside potential for AMD in the next year.