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Advanced Micro Devices AMD showcased its high-performance computing (HPC) dominance at Supercomputing 2024 with the El Capitan supercomputer. Powered by AMD Instinct MI300A APUs, it became the fastest on the Top 500 list with a 1.742 exaflop High-Performance Linpack score.

The El Capitan supercomputer is housed at Lawrence Livermore National Laboratory and built by Hewlett Packard Enterprise HPE. It is AMD’s second system to have broken the exascale barrier.

AMD now powers 50% of the top 10 fastest and 40% of the 10 most energy-efficient supercomputers globally.

Advanced Micro Devices also announced a partnership with International Business Machines IBM to offer AMD Instinct MI300X accelerators on IBM Cloud, further advancing HPC and AI capabilities.

With this, AMD has significantly strengthened its HPC and AI portfolio, targeting high-performance needs in data centers, scientific research, aerospace, defense and communications markets.

AMD Stock Underperforms Despite Strong Data Center Growth

AMD shares have lost 5.4% in the year-to-date period, underperforming the Zacks Computer & Technology sector’s return of 27.8% and the Zacks Computer - IT Systems Market’s growth of 9.8%.

YTD Performance

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The drop can be attributed to weakness in the Gaming and Embedded segments. AMD’s fourth-quarter 2024 guidance is not so encouraging.

However, the semiconductor chip provider has been riding on a strong performance of the Data Center segment.

In the third quarter of 2024, Data Center revenues surged 122.1% to a record $3.5 billion and accounted for 52% of total revenues. Sequentially, data center revenues increased 25%.

AMD’s top line greatly benefited from the well-grounded Instinct product portfolio and strong growth in the fourth-gen EPYC CPU sales.

The chipmaker has been on an acquisitive spree to strengthen its AI ecosystem. The acquisition of ZT Systems, which provides AI infrastructure to large hyperscale computing companies, is noteworthy. This will enable AMD to simultaneously design and validate its next-gen AI silicon and systems, speeding up large-scale deployment of data center accelerators.

Nod.ai and Mipsology are some other notable acquisitions in the recent past. It recently closed the acquisition of Helsinki, Finland-based Silo AI.

AMD’s acquisitiveness is aimed at reducing the technological gap with NVIDIA NVDA in the ongoing race for AI dominance.

Strong Portfolio Boosts AMD’s Prospects

AMD’s expanding portfolio, which now includes the Instinct MI300 Series data center AI accelerators and the Alveo V80 accelerators in the embedded segment, has been noteworthy.

Advanced Micro Devices has a rich partner base with the likes of Dell Technologies, HPE, Lenovo and Supermicro, all having the Instinct platforms in production.

In the third quarter of 2024, AMD’s public cloud instances increased 20% year over year to more than 950, with Microsoft, AWS, Uber and Netflix deploying it at scale.

Meta Platforms alone employed more than 1.5 million EPYC CPUs globally to power its social media platforms. EPYC instance adoption by enterprise customers also expanded, with wins from Adobe, Boeing and Tata, among others.

These developments are making AMD well-poised to challenge NVIDIA not only in the data center market but also in the growing AI-enabled consumer PC market.

AMD has diversified its enterprise customer portfolio in the third quarter with wins from energy, large technology and automotive companies, including Airbus, FedEx, HSBC, Walgreens and others.

However, NVIDIA’s strategy to release new AI chip models annually instead of its previous two-year update timeline intensifies competition for AMD.

For the fourth quarter of 2024, AMD expects Data Center and Client revenues to be up significantly, driven by the strong product portfolio. However, it expects the Embedded and Gaming segment revenues to decline year over year.

AMD expects fourth-quarter 2024 revenues to be $7.5 billion (+/-$300 million). At the mid-point of the revenue range, this represents a year-over-year rise of approximately 22% and sequential growth of approximately 10%.

The Zacks Consensus Estimate for the fourth-quarter 2024 revenues is pegged at $7.51 billion, indicating 21.82% year-over-year growth. The consensus mark for earnings is pegged at $1.06 per share, down by 7 cents over the past 30 days, but suggesting 37.66% year-over-year growth.

Advanced Micro Devices, Inc. Price and Consensus

Advanced Micro Devices, Inc. price-consensus-chart | Advanced Micro Devices, Inc. Quote

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

AMD Stock Overvalued

AMD stock is overvalued, as the Value Score of D suggests a stretched valuation at this moment.

The stock is trading at a premium with a forward 12-month Price/Sales of 7.16X compared with the Zacks Computer & Technology sector’s 6.21X.

Price/Sales (F12M)

Image Source: Zacks Investment Research

Conclusion

AMD’s near-term prospects are dull, given the weakness in the Embedded and Gaming segments amid stiff competition from NVIDIA.

However, the chipmaker’s expanding portfolio due to acquisitions of ZT Systems and Silo AI is expected to boost top-line growth. Hence, investors who already own the stock may expect these factors to be rewarding over the long term.

AMD currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise for investors to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.