Chipmaker Advanced Micro Devices is an “emerging growth opportunity” in AI, according to Morgan Stanley Wealth Management. Investment strategist Daniel Skelly said he added the chipmaker to the firm’s equity model portfolio. He noted that AMD is “a leader in chip end markets with potential AI tailwinds.” “AMD continues to take share from key competitors (including Intel) as it launches competitive and on-time releases of new chips and supporting product roadmaps,” Skelly said. Skelly anticipates AMD’s success in CPUs to extend to servers and other end-side markets. “As AMD experiences a cyclical recovery in its core end markets heading into 2024 we also expect it to show material AI revenues, potentially supporting estimate revisions,” Skelly added. AMD posted its second-quarter results on Aug. 1. Despite reporting an 18% revenue decline year-over-year, the company still managed to beat analyst estimates on earnings and revenue. “We viewed AMD’s 2Q23 print constructively as management indicated improving business conditions into the second half of the year,” Skelly said. “With data center revenue growth troughing, we believe investors should look through to a 2024 inventory re-build that is supported by tailwinds from AI.” Skelly noted he was underweight on the semiconductor sector, believing that valuations “were demanding into an inventory cycle.” However, the 6% pullback in AMD shares following its second-quarter earnings announcement has created an opportunity to gain more exposure to the chip sector, the strategist said. “Although there remains a high degree of uncertainty related to the broader semiconductor cycle, we believe current valuation at ~27x consensus F24E EPS appears compelling given its opportunity to grow share in CPU/GPUs and drive new incremental share from AI applications,” Skelly said. “Notably, when compared to other ‘AI beneficiary’ stocks, AMD still trades at a meaningful discount despite our conviction in its positioning longer-term,” he continued. Shares were up 0.8% on Thursday. The stock has surged more than 70% year to date. —CNBC’s Michael Bloom contributed to this report.
