AMD Stock Rating Upgrade: No Longer Dead Money

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Are you in need of some market guidance and support? The Quantamental Investor community offers exclusive insights and advice to help you navigate any market conditions. In late January 2024, there was a downgrade of Advanced Micro Devices, Inc. (NASDAQ: AMD) from a "Hold" to a "Sell" rating, labeling the stock as "dead money" for the next five years due to its unattractive long-term risk/reward outlook.

Despite the stock's recent surge, the Q4 2023 report indicated lower revenue and earnings estimates, leading to concerns about a potential correction. However, the outlook for 2024 is more promising, especially in terms of AI potential. Despite this, the stock is seen as overpriced at $177 per share, making the long-term risk/reward ratio unappealing. As a result, a "Sell" rating was issued ahead of the Q4 2023 report.

Following a post-earnings report decline, AMD's stock experienced a significant drop to around $147 per share, below the "Sell" rating price of $177 per share. Despite this, the Q1 2024 report brought some positive news, with revenue and EPS slightly exceeding expectations. The Data Center segment showed strong growth, particularly in AI GPU accelerators, indicating potential for future success.

While AMD's AI GPU revenue growth is promising, it may not be enough to drive overall business growth significantly. The company's Q2 2024 revenue guidance suggests moderate growth, but still lags behind competitors like Nvidia and Super Micro. However, improvements in gross margins and operating expenses offer some positive signals for the future.

With a strong financial position and positive revenue growth, AMD is expected to generate increasing free cash flow in the coming quarters. Despite meeting expectations in Q1, the stock's performance may continue to be under pressure due to its valuation. However, AMD's long-term prospects in the AI market and data center business show promise for future growth.

In conclusion, the outlook for AMD has improved following the Q1 2024 report, leading to an upgrade from a "Sell" to a "Hold/Neutral" rating. While the stock may still be overvalued, positive trends in the Data Center business and potential for growth in the AI market suggest a more favorable long-term outlook. Keep an eye on AMD's performance in the coming quarters for further insights into its future prospects.