What do Lisa Tzwu-Fang Su and Jen-Hsun Huang have in common? To put it briefly, a lot. They are first cousins, both have Taiwanese roots, were born in the 1960s, studied electrical engineering and are now at the top of leading chip companies. Lisa Su is responsible for the strategy of Advanced Micro Devices, or AMD for short, while Huang wields the sceptre at Nvidia. The two technology giants are currently engaged in a fierce battle for the best AI chip.
Artificial intelligence (AI) is the topic of the day and the most important resource in this megatrend is high-performance chips. The US company Nvidia is still in the lead. According to experts, the Californians dominate 80% of the global market. Nvidia is also a technological leader. The company recently demonstrated this once again with the presentation of its new "Blackwell B200" AI chip. The number of transistors in the B200 has more than doubled to 208 billion compared to the previous model.
However, the competition does not want to leave the huge market to Nvidia alone. Goldman Sachs assumes that AI investments in the USA alone will reach 1% of gross domestic product by 2030, which would equate to around USD 287 billion. AMD is hot on Nvidia's heels. At the end of last year, AMD presented the "MI300" processor, which is tailored to processing information for generative AI such as ChatGPT. In April of this year, the company went one better and presented a new series of AI semiconductors for business laptops and desktops. These are expected to be available to customers from the second quarter of 2024.
The AMD CEO already made it clear last year that AI is the biggest and strategically most important long-term growth opportunity for the semiconductor company. This year, Su is targeting sales of AI chips worth USD 3.5 billion. The 54-year-old has thus raised the previous forecast by USD 1.5 billion. "Demand for our high-performance products for data centers continues to grow," said the CEO when presenting the figures for 2023, adding: "This puts us in a good position to achieve strong growth at a time when AI is transforming virtually every part of the computing market."
Even though this all sounds very positive, dark clouds have recently been gathering over AMD shares on the capital market. While the tech stock reached a fresh record high of USD 227 at the beginning of March, a sharp correction then set in. Since then, the chip giant has lost just over a third of its market value and has clearly slipped behind competitor Nvidia. While AMD has dipped into negative territory since the beginning of the year after a temporary rise of around 40%, Nvidia is still up by around half.
Various reasons currently seem to be spoiling investors' appetite for AMD. Firstly, there is the forecast for this year's AI sales. Even though the Group has raised its targets, market participants had hoped for even more. According to research firm Summit Insights, investors were aiming for a range of USD 4 to 8 billion. In addition, the Group's revenue performance also leaves much to be desired. For the first quarter, AMD is expecting a low figure of USD 5.4 billion plus/minus USD 300 million. The reason for this is a weak economy, which is dampening demand for programmable processors for cars or medical devices. In addition, the gaming business is also developing unevenly, slumping by 17% in the final quarter of 2023. AMD will present its quarterly results on April 30.
A lot of disappointment potential could now be priced into AMD shares. This thesis is also in line with consensus expectations. Out of 50 analyst studies, 80% result in a buy recommendation. The average 12-month price target is USD 200, which equates to a buy opportunity of around one third. Even the few sell recommendations see little potential for a setback. The lowest estimate of USD 125 is just under 16% below the current price.
Barrier Reverse Convertibles (BRC) fit perfectly into this scenario, as these products do not require price increases for a return and at the same time offer a downside buffer. Leonteq has launched two new single soft callable BRCs on AMD: the Swiss franc variant offers a maximum yield of 12.00% p.a., while in USD 16.00% p.a. is even possible within the maximum term of 15 months. The double-digit percentage yields are partially protected with comfortable risk buffers of 41%. The AMD share was last at such a low level in May 2023. The first soft callable observation date takes place after 6 months.
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