Advanced Micro Devices (NASDAQ: AMD) share prices inflated in 2023 and early 2024 on hopes for an AI boom like NVIDIA (NASDAQ: NVDA). The share price is down 35% from that peak because the boom didn’t happen, or did it? Unlike NVIDIA, Advanced Micro Devices is a highly diversified semiconductor manufacturer with offsetting businesses. That is having an impact on the results and market sentiment. 

On the one hand, AMD is experiencing an AI boom in two of its core business. Conversely, two core businesses struggle as their end markets reset and normalize. Because those markets are working through inventory issues and are well situated for long-term growth related to AI and upgrade cycles, they may soon turn into tailwinds. 

Regardless, the company’s Q1 results were solid, and so was the guidance. The outlook is for sequential improvement in Q2 and an acceleration from Q1, a tailwind today. The only problem is that results align with the consensus, which is not a catalyst for rallying. However, with share prices down 35% from the high, the tepid performance is likely priced into the market, leaving it at rock bottom. 

Advanced Micro Devices Sustains Growth, Forecasts Acceleration

[content-module:CompanyOverview|NASDAQ:AMD]Advanced Micro Devices had a solid quarter in Q1. The problem for the market today is the high bar set by analysts and market hope going into the release. Despite the report's tepidness, revenue is up 2.2% to $5.47 million, aligning with the consensus. Strength was seen in the Data Center segment, up 80% YOY and in Client, up 85%. The data center segment is driven by demand for the Instinct and Epyc chip groups, including the MI300. The Client segment is driven by demand for the Ryzen line of processors, which is aiding the advancement of AI at the edge. 

Weakness was seen in the Gaming and Embedded segments, down 48% and 46%, respectively. The outlook for gaming is weak but includes normalization over the next year. The outlook for Embedded is much better - embedded semiconductor markets are expected to resume growth and sustain a mid-single-digit CAGR through the decade's end. Forecasts for embedded growth may also be cautious due to AI.

Margin news is also good, albeit aligning with market expectations. The company’s margin widened significantly at the gross level due to revenue leverage. The gross margin widened by 200 basis points to 52%, with the operating margin holding flat. Operating income is up 3%, net income is up 4%, and adjusted earnings are up 3%. The $0.62 is a penny ahead of the consensus, outpacing the top line by a hair. 

Guidance is also favorable to shareholders, although aligning with the consensus. The company forecasts $5.7 billion in net revenue for a sequential gain of 4% compared to a contraction in Q1 and a YOY gain of 6% compared to 2.2% in Q1. The analysts expected $5.69 billion. 

Analysts Trim Targets: Double-Digit Upside Is Indicated

The analysts are trimming their targets for AMD stock, which may cause a headwind in the near term. However, the lowest fresh target is $162, which implies a 10% upside from the post-release price action. The range of targets runs as high as $250, which is a maintained target by Rosenblatt and the highest among analysts. 

Most fresh targets have the stock trading between $175 and $210, a 13% to 42% upside. Analysts maintain their sentiment ratings and the consensus of Moderate Buy. The takeaway from the chatter is that supply constraints impact results in DC now but are expected to improve in the second half; with this in play, the company is in the early stages of its AI ramp and has likely sandbagged the outlook. 

Advanced Micro Devices Stock is at Rock Bottom

AMD stock is at a critical turning point. The market is down 7% following the release but showing some signs of support at a key level. That level aligns with the prior lows and maybe the bottom for this market. The indicators suggest as much. The stochastic is set up to fire a strong buy signal should the price action rise and MACD is divergent from the latest lows, likewise set up to fire a strong signal. 

The question is if the market will take the bait. A move to a new low would be bearish and likely lead the market down to $134 or lower; a rebound from this level would be bullish and may get as high as $160 before encountering significant resistance. A move to the consensus target near $180 would put this market into a complete reversal.