AMD gains as Northland says share gains likely to continue

Investing.com -- Shares of Advanced Micro Devices (AMD) (NASDAQ:AMD) rose on Monday during pre-market trading after analysts at Northland Capital Markets said that they believe that the company will report revenue at or above the high end of its guidance for the third quarter in a note dated Monday. 

“We expect AMD to continue to gain a share in server CPUs and AI accelerators in CY25. Slowing earnings growth will likely be OPEX as AMD invests billions of dollars to capture tens of billions of future annual revenue,” the analysts said.

The anticipated revenue increase is expected to boost AMD's bottom line, with non-GAAP earnings likely surpassing the consensus estimate of $0.92 per share.

The analysts flagged AMD's ability to gain market share in the server CPU segment, a trend that has been bolstered by improvements in the enterprise market over the last three months. 

There are signs that demand for non-AI server products is also picking up, contributing to AMD's momentum in data center AI solutions. 

Northland expects AMD to guide for revenue above consensus for the fourth quarter, fueled by ongoing strength in its AI, server CPU, and client product lines.

The analysts do not expect AMD to provide guidance for calendar year 2025 during the upcoming earnings report, which is anticipated in January 2025. 

However, they noted a sharp increase in AMD’s revenue share in the server market, rising from just 2% in 2019 to 34% in the first half of 2024. 

This growth has been attributed to AMD's competitive product offerings, which continue to outperform those of its main rival, Intel (NASDAQ:INTC). 

Additionally, early performance benchmarks suggest that AMD will maintain its upward trajectory in market share with the next generation of server CPUs expected to launch in 2025.

AMD’s share in the AI accelerator market is also projected to grow, with estimates indicating an increase from 0.7% in 2023 to 3.9% in 2024. 

Analysts at Northland believe that AMD will continue to capture a larger slice of the accelerator market moving forward, especially as NVIDIA (NASDAQ:NVDA) faces delays with its Blackwell product family. 

The expected release of AMD’s next-generation MI325x accelerators in early 2025 is expected to position the company well against NVIDIA's offerings, further solidifying its market presence.

The shift toward AMD is partly driven by cloud service providers' (CSPs) desire for alternatives to NVIDIA, as indicated by year-over-year growth in AMD's AI revenue. 

Analysts at Northland estimate that AMD could potentially double its market share over the next two years, thanks to strategic partnerships with industry giants such as Google (NASDAQ:GOOGL), Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), and Hugging Face.

Beyond 2025, Northland's projections suggest that AMD could generate between $18 billion and $28 billion in AI revenue by 2027, representing 6.2% to 9.7% of the AI accelerator market. 

The total revenue for AMD in 2027 could range from $45 billion to $55 billion, contingent on steady growth in its other product lines. 

Analysts estimate potential earnings power of $6 to $9 per share by that time, although operating expenses remain a major variable in these projections.

While there are concerns regarding AMD's necessary investments to catch up with NVIDIA, Northland asserts that the company’s share gains against Intel demonstrate the long-term value of AMD's strategic investments.