Is AMD Catching Up to Nvidia? Here's What a Top Analyst Says
Advanced Micro Devices (NASDAQ:AMD) might have fallen way behind Nvidia (NASDAQ:NVDA) in the AI game but its latest move indicates it is ready to put up a fight and close the gap on the AI chip king.
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On Monday, AMD announced it completed its $4.9 billion acquisition of ZT Systems, a major supplier of AI infrastructure solutions for global hyperscalers. The company plans to sell off ZT's manufacturing assets once a suitable buyer is found, while retaining around 1,000 specialized engineers with expertise in rack-scale systems. These engineers are expected to play a crucial role in areas like customer validation and testing, which are essential for deploying increasingly large, powerful, and GPU-intensive systems. The acquisition is being funded using a combination of stock and cash.
According to Stifel's Ruben Roy, an analyst ranked in the top 4% of Street stock pros, the deal indeed gives AMD a strategic boost.
'We think it speeds and strengthens the firm's positioning in an evolving supply and demand market dynamic that is accelerating toward multi-cluster rack-scale compute deployments, particularly as AMD moves toward MI400-series accelerators,' Roy opined.
Former ZT Systems Founder and CEO Frank Zhang will join AMD as Senior Vice President of ZT Manufacturing and Roy thinks he will oversee the divestiture of ZT's manufacturing business, which mainly operates in the U.S. and Europe. It has been stated that this business generated over $10 billion in revenue over the past 12 months. Roy thinks various EMS providers and white-box server ODMs could be interested in purchasing the manufacturing business.
Additionally, former ZT Systems President Doug Huang will take on the role of Senior Vice President of Data Center Platform Engineering at AMD. He will lead design and customer enablement teams, collaborating closely with AMD's Data Center Solutions business unit and AI Group to accelerate the launch of data center AI solutions.
Roy believes that this infusion of talent from ZT is critical to AMD's broader product strategy. He envisions that market demand for AMD's accelerators will soar, propelled by the industry's shift toward open-source infrastructure. This acquisition not only primes AMD for rapid advancements toward ultra-high-speed networking solutions – targeting speeds of 1.6T and eventually 3.2T – but also sets the stage for overcoming challenges linked to macroeconomic factors (inflation, interest rates, end market demand) and the complex integration of ZT's resources.
So, what's the bottom line for investors? Roy has a Buy rating on AMD, with a price target of $162 – pointing to a potential upside of 57.5% from where the stock stands today. (To watch Roy's track record, click here)
The Street's average price target is a little lower, but at $146.87, still makes room for 12-month returns of 43%. All told, based on a mix of 24 Buys, 12 Holds and 1 Sell, the analyst consensus rates the stock a Moderate Buy.(See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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