HSBC says buy this major chip stock as AI upside potential is not fully realized By

-- In a note to clients on FXCM GroupTuesday, HSBC said it is bullish on AMD (NASDAQ:), citing significant upside potential in AI-driven revenue that the market has yet to fully appreciate.

According to the bank's analysts, AMD's opportunity to close the gap with industry leader Nvidia (NASDAQ:) in the AI GPU space by fiscal year 2025 (FY25) presents an attractive risk/reward proposition.

They maintain a Buy rating on the stock, with a target price of $200, reflecting a potential 43% upside.

AMD is "still a distant second but [has the] potential to narrow the AI gap with Nvidia given Nvidia's roadmap shift and ZT acquisition in FY25," said HSBC.

The bank believes the market is underestimating AMD's potential in the AI space. The firm forecasts AI revenues of $6 billion for AMD in 2024 and $12.3 billion in 2025, well above consensus estimates of $5.1 billion and $9.6 billion, respectively.

HSBC believes that AMD's upcoming MI325X GPU, expected to launch in the second half of 2024, could be more competitive with Nvidia's H200 GPU, which could lead to further revenue upside for AMD.

A key factor in HSBC's optimism is Nvidia's recent adjustments to its AI GPU roadmap. Nvidia has pushed out some of its AI GPU platforms to late 2025, which HSBC says opens the door for AMD to narrow the competitive gap.

AMD's acquisition of ZT Systems is seen as a strategic move that could help the company develop rack-scale infrastructure earlier than expected, providing a further competitive edge.

The bank maintains that AMD's AI GPU revenue in 2025 could reach $12.3 billion, with a best-case scenario of $15.1 billion.

"Our scenario analysis based on higher CoWoS of 70k-80k in 2025 implies AI GPU revenue of USD13.2bn-USD15.1bn vs our base case of USD12.3bn, with AI GPU revenue of USD15.1bn in the most bullish scenario being 58% ahead of consensus estimate of USD9.6bn," the analysts stated.

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