AMD’s stock price had a difficult year in 2024, even as it gained some market share in the artificial intelligence (AI) industry. It crashed by 45% from its yearly highs and formed a death cross in November, pointing to more downside. AMD was trading at $126, bringing its valuation to about $204 billion.
AMD faces major challenges
AMD had some dark and bright spots in 2024. On the positive side, the company launched new GPUs, which have gained some market share in the data center industry.
However, its other key areas of business like gaming and embedded, continued experiencing major deceleration, a move that has affected its overall growth trajectory.
The most recent quarterly results revealed that AMD’s data center revenue was surging, helped by its new chips. The AMD Instinct GPU increased revenue by 122% to $3.5 billion during the quarter.
There are signs that these GPUs are gaining market share against NVIDIA’s H100, the current market leader. That’s partly because NVIDIA’s chips are harder to find, with big companies like Microsoft and Amazon buying most of them.
AMD’s Instinct chips are also cheaper, costing about $20,000 compared to H100, which cost between $30k and $40k.
AMD’s main challenge is that the artificial intelligence industry is not growing as quickly as initially thought. Bloomberg has predicted the industry will experience a prolonged winter as its growth slows.
A key issue is that the soaring AI investments are not correlating with its demand or use. Other than chat products like ChatGPT, xAI, and Claude, more advanced AI use has not happened as was initially expected.
A good example of this is NVIDIA, which reported strong revenue numbers, but demonstrated slow growth momentum. The most recent data showed that NVIDIA’s revenue rose by 94% in the third quarter. Analysts see its revenue growth in the next two quarters being 72% and 61%, respectively.
AMD’s challenge is that it may find it difficult to find more catalysts to offset the slowdown in the AI industry. Besides, analysts expect the PC industry to continue experiencing slow growth during the year. IDC predicts that PC sales will grow by 4.3% this year, helped by the emerging markets.
Read more: Wolfe analysts now favour AMD stock over Nvidia: here’s why
AMD valuation analysis
Analysts anticipate that AMD’s business will do well as its data center business continues doing well.
The average estimate is that its sales will rise 22% to $7.5 billion and then grow 30% in the next quarter.
AMD’s annual revenue is expected to grow by 13% to $25.6 billion this year and $32.5 billion next year.
The company has a forward PE ratio of 38, higher than the sector median of 25.50. Its forward EV to EBITDA of 33, higher than the sector median of 15. These numbers mean that the company is still highly overvalued as its growth starts to slow.
Analysts believe that AMD’s stock price has more upside. The average estimate is that it will reach $183, much higher than the current $126.
AMD stock price analysis
The AMD share price has been in a strong downtrend this year. It is hovering near the key support at $122, its lowest swing on August 5 and the 61.8% Fibonacci Retracement level.
The stock has moved below the descending trendline that connects the highest swing in July this year.
It has formed a death cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA). This crossover is one of the most bearish chart patterns.
Therefore, a drop below the support at $118, its YTD low of $118, will point to more downside, with the next point to watch being at $91, the 78.6% retracement level.
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