July was a challenging month for tech stocks, with the sector suffering a significant decline of -7.22%. This downturn was felt acutely among industry giants. For instance, Apple Inc. (NASDAQ: AAPL) saw its shares drop by -7.38% from July 16 to July 25. Similarly, NVIDIA Corp. (NASDAQ: NVDA) experienced a steep decline of -23.11% between July 10 and July 30.
Despite this setback, the tech sector began showing signs of recovery as earnings reports started rolling in. Apple, ahead of its earnings call on August 1, witnessed a modest gain of 2.32% since July 25. NVIDIA, on the other hand, rebounded significantly, recouping 11.66% from July 30 to July 31. Amidst these developments, another tech giant, Advanced Micro Devices Inc. (NASDAQ: AMD), emerged as a standout performer. Following its second-quarter earnings call on July 30, AMD demonstrated promising potential for the remainder of the year and beyond, projecting robust growth through 2025.
NVIDIA continues to lead the semiconductor and AI sectors. However, with the industry’s rapid expansion, even a dominant player like NVIDIA cannot fulfill the surging demand alone. Enter Advanced Micro Devices Inc., a semiconductor company with a market capitalization of $233.33 billion, based in Sunnyvale, California. AMD’s earnings call after the market closed on July 30 revealed impressive results, driving shares up by 12.67%. The company reported earnings and revenue beats of 1.26% and 1.99%, respectively, with forward guidance projecting third-quarter revenue around $6.7 billion. This estimate suggests a year-over-year growth of 16% at the midpoint of revenue forecasts.
The Wall Street Journal has set a high-end price target of $250 per share for AMD over the next year. Here are three compelling reasons why AMD is well-positioned for substantial growth through 2025:
1. Rapidly Expanding Profitability
According to Grand View Research, the compound annual growth rate (CAGR) for the global market for AI-essential microchips is projected to be 8.2% from 2024 to 2030. Companies within this space are gearing up to meet the escalating demand, and AMD is among the best-positioned chipmakers to capitalize on this growth while enhancing its profitability.
During the second-quarter earnings call, Lisa Su, AMD’s chairwoman, president, and CEO, highlighted that the company’s profitability is increasing by double-digit percentages, driven by higher-than-expected sales of its Instinct, Ryzen, and EPYC processors. AMD is currently operating with a trailing 12-month (TTM) gross profit margin of 46.76%, a TTM operating margin of 2.55%, and a TTM net margin of 4.89% — the highest since September 2010.
2. Growing Data Center Business
The data center market is set for substantial growth, with its market size expected to increase from $301.8 billion in 2023 to $622.4 billion by 2030. As cloud computing and AI demands surge, so does the need for data centers, placing AMD in a favorable position.
Lisa Su reported that AMD’s data center segment grew by an impressive 115% year over year, reaching a record $2.8 billion, driven by the rapid ramp-up of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales. This robust performance in AMD’s data center segment is expected to continue growing alongside the expansion of data center facilities globally through 2030.
3. An A-List of Big Tech Clients
The demand for microchips and semiconductors for AI applications spans various industries, but AMD’s growth is bolstered by its prestigious list of Big Tech clients. During the second-quarter earnings call, Lisa Su announced that major companies such as Broadcom, Cisco, HP Enterprise, Intel, Google, Meta, and Microsoft collaborated with AMD to introduce Ultra Accelerator Link. This industry-standard technology, based on AMD’s proven Infinity Fabric technology, connects hundreds of AI accelerators. Additionally, Microsoft expanded its use of MI300X accelerators to power GPT-r Turbo and multiple copilot services, including Microsoft 365 Chat, Word, and Teams.
AMD’s products and services are in high demand, and the company maintains ongoing contracts with some of the largest tech firms, which are increasing their budgets for AI implementation.
Key Takeaways
- Impressive Financial Performance: AMD’s earnings and revenue exceeded expectations, with significant growth projections for the future.
- Strategic Positioning in the Data Center Market: AMD is well-positioned to benefit from the rapid expansion of data center facilities globally.
- Strong Partnerships with Big Tech: AMD’s collaborations with major tech companies ensure continued demand for its products and services.
Conclusion
Advanced Micro Devices Inc. is strategically positioned to capitalize on the booming semiconductor and AI markets. With strong financial performance, a rapidly growing data center business, and a robust network of Big Tech clients, AMD is poised for significant growth through 2025. Investors should keep a close eye on AMD as it continues to expand its market presence and profitability.