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AMD Buys ZT: Can Expanding AI Footprint Push the Stock Higher?
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Advanced Micro Devices (AMD - Free Report) is strengthening its data center AI footprint with the announced acquisition of ZT Systems for roughly $4.9 billion in cash and stock. The transaction includes a contingent payment of up to $400 million upon achieving certain milestones post-completion.
The deal, expected to close in the first half of 2025, will expand AMD’s data center AI footprint. ZT System serves a number of the world’s largest hyperscalers through its AI and general-purpose compute infrastructure offerings.
The acquisition will help AMD offer optimized rack-scale solutions in the data center AI accelerator market, which is expected to hit roughly $400 billion in 2027.
AMD expects the transaction to be accretive on a non-GAAP basis by the end of 2025.
AMD Stock Rides on Strong Data Center Demand
AMD shares have jumped more than 37% since its second quarter 2024 (Jul 30), outperforming the broader Zacks Computer & Technology sector's return of 28.5%.
AMD Stock Outperforms Sector
Image Source: Zacks Investment Research
The semiconductor chip provider has been riding on strong performance of the Data Center segment. In the second quarter of 2024, Data Center revenues surged 114.5% year over year to $2.83 billion and accounted for 48.6% of total revenues. Sequentially, revenues increased 21%.
In the data center AI business, MI300 quarterly revenues exceeded $1 billion for the first time.
AMD has been on an acquisition spree to strengthen its AI ecosystem. In the past 12 months, it has spent $125 million on a dozen of acquisitions. 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 primarily reducing the technological gap with NVIDIA (NVDA - Free Report) in the ongoing race for AI dominance. NVIDIA shares have gained 177% since Jul 30, 2024.
Strong Portfolio Boosts AMD’s Prospects
Both AMD and NVDA have been the darlings of investors, driven by the massive proliferation of AI that has created a strong demand for GPU chips required to power AI models. The AI space is expected to remain robust with increased spending by cloud computing providers like Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) .
In the second quarter of 2024, Microsoft expanded its usage of MI300X accelerators to power GPT-4 Turbo and multiple co-pilot services, including Microsoft 365 Chat, Word and Teams. It also became the first large hyperscaler to announce the general availability of public MI300X instances.
AMD’s initiatives to expand its portfolio are making it well-positioned to challenge NVDA not only in the data center market but also in the growing AI-enabled consumer PC market.
New offerings like the Instinct MI325X accelerator are helping to expand AMD’s footprint in the data center market. AMD has launched the Ryzen AI 300 Series, the third generation of AMD AI-enabled mobile processors, and Ryzen 9000 Series processors for laptop and desktop PCs.
However, AMD suffers from the challenging macroeconomic environment and rising uncertainty over the upcoming Presidential elections, given its much smaller size and GPU market share compared to NVIDIA.
NVIDIA’s strategy to release new AI chip models annually instead of its previous two-year update timeline intensifies competition for AMD.
For third-quarter 2024, AMD expects the Embedded and the Gaming segment revenues to decline year over year.
Estimate Revision Shows Downward Trend
AMD expects third-quarter 2024 revenues to be $6.7 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 16% and sequential growth of approximately 15%.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $6.71 billion, indicating 15.71% growth year over year. The consensus mark for earnings is pegged at 90 cents per share, down 3.2% over the past 30 days but suggesting 28.57% year-over-year growth.
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise
AMD stock is overvalued, as the Value Score of F suggests a stretched valuation at this moment.
The stock is trading at a premium with a forward 12-month P/S of 8.45X compared with the Zacks Computer and Technology sector’s 6.44X.
P/S Ratio (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. AMD has a Growth Score of D, which makes the stock unattractive for growth-oriented investors.
However, AMD’s expanding portfolio, thanks to acquisitions of Silo AI and ZT Systems, is expected to boost its top-line growth.
AMD currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. However, investors who already own the stock may expect the company's growth prospects to be rewarding over the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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AMD Buys ZT: Can Expanding AI Footprint Push the Stock Higher?
Advanced Micro Devices (AMD - Free Report) is strengthening its data center AI footprint with the announced acquisition of ZT Systems for roughly $4.9 billion in cash and stock. The transaction includes a contingent payment of up to $400 million upon achieving certain milestones post-completion.
The deal, expected to close in the first half of 2025, will expand AMD’s data center AI footprint. ZT System serves a number of the world’s largest hyperscalers through its AI and general-purpose compute infrastructure offerings.
The acquisition will help AMD offer optimized rack-scale solutions in the data center AI accelerator market, which is expected to hit roughly $400 billion in 2027.
AMD expects the transaction to be accretive on a non-GAAP basis by the end of 2025.
AMD Stock Rides on Strong Data Center Demand
AMD shares have jumped more than 37% since its second quarter 2024 (Jul 30), outperforming the broader Zacks Computer & Technology sector's return of 28.5%.
AMD Stock Outperforms Sector
Image Source: Zacks Investment Research
The semiconductor chip provider has been riding on strong performance of the Data Center segment. In the second quarter of 2024, Data Center revenues surged 114.5% year over year to $2.83 billion and accounted for 48.6% of total revenues. Sequentially, revenues increased 21%.
In the data center AI business, MI300 quarterly revenues exceeded $1 billion for the first time.
AMD has been on an acquisition spree to strengthen its AI ecosystem. In the past 12 months, it has spent $125 million on a dozen of acquisitions. 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 primarily reducing the technological gap with NVIDIA (NVDA - Free Report) in the ongoing race for AI dominance. NVIDIA shares have gained 177% since Jul 30, 2024.
Strong Portfolio Boosts AMD’s Prospects
Both AMD and NVDA have been the darlings of investors, driven by the massive proliferation of AI that has created a strong demand for GPU chips required to power AI models. The AI space is expected to remain robust with increased spending by cloud computing providers like Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) .
In the second quarter of 2024, Microsoft expanded its usage of MI300X accelerators to power GPT-4 Turbo and multiple co-pilot services, including Microsoft 365 Chat, Word and Teams. It also became the first large hyperscaler to announce the general availability of public MI300X instances.
AMD’s initiatives to expand its portfolio are making it well-positioned to challenge NVDA not only in the data center market but also in the growing AI-enabled consumer PC market.
New offerings like the Instinct MI325X accelerator are helping to expand AMD’s footprint in the data center market. AMD has launched the Ryzen AI 300 Series, the third generation of AMD AI-enabled mobile processors, and Ryzen 9000 Series processors for laptop and desktop PCs.
However, AMD suffers from the challenging macroeconomic environment and rising uncertainty over the upcoming Presidential elections, given its much smaller size and GPU market share compared to NVIDIA.
NVIDIA’s strategy to release new AI chip models annually instead of its previous two-year update timeline intensifies competition for AMD.
For third-quarter 2024, AMD expects the Embedded and the Gaming segment revenues to decline year over year.
Estimate Revision Shows Downward Trend
AMD expects third-quarter 2024 revenues to be $6.7 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 16% and sequential growth of approximately 15%.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $6.71 billion, indicating 15.71% growth year over year. The consensus mark for earnings is pegged at 90 cents per share, down 3.2% over the past 30 days but suggesting 28.57% year-over-year growth.
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise
Advanced Micro Devices, Inc. price-consensus-eps-surprise-chart | Advanced Micro Devices, Inc. Quote
AMD Stock Overvalued
AMD stock is overvalued, as the Value Score of F suggests a stretched valuation at this moment.
The stock is trading at a premium with a forward 12-month P/S of 8.45X compared with the Zacks Computer and Technology sector’s 6.44X.
P/S Ratio (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. AMD has a Growth Score of D, which makes the stock unattractive for growth-oriented investors.
However, AMD’s expanding portfolio, thanks to acquisitions of Silo AI and ZT Systems, is expected to boost its top-line growth.
AMD currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. However, investors who already own the stock may expect the company's growth prospects to be rewarding over the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.