Fri Jan 10 15:00:00 UTC 2025: **AMD Stock Undervalued Despite 2024 Dip, Says Morningstar**
CHICAGO, Jan. 8, 2025 – Despite a challenging 2024 that saw its stock price fall 18%, Advanced Micro Devices (AMD) remains a strong buy, according to Morningstar analysts. The firm believes current market sentiment undervalues the semiconductor giant, which it considers a “narrow-moat” company with significant potential for growth in the burgeoning AI market.
Morningstar’s $160 fair value estimate places AMD’s current stock price 20% below its potential. The firm projects strong revenue growth, forecasting a 20% compound annual growth rate (CAGR) from 2024 to 2028, driven largely by a predicted 41% CAGR in data center revenue. This growth is expected to be fueled by increasing demand for AMD’s server CPUs and AI-optimized GPUs. While acknowledging Nvidia’s dominance in AI GPUs, Morningstar highlights AMD’s position as a key second-source supplier for leading cloud providers.
“Being second best in a lucrative market expected to reach $500 billion by 2028 isn’t too shabby,” stated Brian Colello, Morningstar strategist. He emphasized AMD’s strengths, including its outsourced manufacturing model and expertise in x86 instruction set architecture. The firm expects AMD’s adjusted gross margin to rebound to 53% in 2024 and reach 57% by 2028.
However, Morningstar also acknowledges risks. These include AMD’s dependence on the cyclical PC market and its need to catch up to Nvidia in AI software tools. Potential threats from Intel regaining its manufacturing edge and new market entrants were also noted.
Despite these challenges, AMD’s inclusion in Morningstar’s lists of “Best AI Stocks to Buy Now” and “3 Stocks to Buy if the Economy Stalls—and 3 Stocks to Buy if It Doesn’t” underscores the firm’s confidence in its long-term prospects. The analysts believe AMD is likely to generate excess returns on capital over the next 10 years.
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