AMD Earnings: Ignore the Results and Buy the Stock

Advanced Micro Devices (AMD) was late to the AI game and is now trying to play catchup. With Nvidia (NVDA) so far out in front in the AI chip space, Wall Street is doubtful it will succeed. 

Having ceded so much ground to its rival, Advanced Micro is seen as a distant also-ran and over the past few days suffered through a series of analyst downgrades. Investors shouldn't be swayed. 

AI technology is changing rapidly, almost on a daily basis it seems. With the chipmaker due to report fourth-quarter results on Feb. 4, AMD stock looks like it's a buy, no matter what earnings say.

Earnings On Tap

Wall Street forecasts Advanced Micro Devices will report revenue of $7.53 billion for Q4, up 22% year-over-year, in-line with management guidance of $7.5 billion, plus or minus $300 million. Earnings of $1.09 per share, a 41.5% increase, are expected.

For the full-year analysts anticipate revenue of $25.6 billion, up 13%, on EPS of $3.32 per share, a 25% gain.

Analysts have suggested demand for AMD's latest high-bandwidth memory chip MI325 is "lukewarm," but what AMD has achieved over the last 12 months is less significant than what is to come. That includes its newest MI350 chip to be released later this year, which will be followed by the MI400 in early 2026. 

DeepSeek Creates Deep Fissures

The tech sector was blind-sided by the DeepSeek release over the weekend that led to a massive rout in AI stocks and the loss of almost $1 trillion in market value. While most of that was from Nvidia, which alone lost $590 billion, it was clear a new paradigm shift is underway in AI technology.

Using dumbed-down Nvidia chips that were designed to bypass technology export restrictions to China, the AI lab developed workarounds to create a model that was faster, more efficient, and cheaper to train and run than existing models. And because DeepSeek is open-source, anyone can modify its algorithms, fine-tune it, and build upon its foundation. It completely upended the AI market and sent stocks careening lower.

AMD fared better than most, only falling 4% that day compared to a 17% plunge by Nvidia. 

A Fast-Moving Stream

And now the landscape may be changing again. Alibaba (BABA) just released an update to its Qwen 2.5 model that supposedly outperforms ChatGPT, Meta Platforms (META) Llama 3.1, and even DeepSeek.

While we don't know much about Alibaba's achievement just yet, its AI model runs on even older A100 GPUs. It seems we're quickly transitioning away from models that demand large numbers of massive clusters of expensive AI GPUs to ones that are sleek, efficient, and cheap. That bodes well for AMD.

Although it has struggled to match the demand Nvidia enjoys amongst data centers and hyperscalers for its leading H100 chips, let alone the soon-to-be-released Blackwell chips, it is increasingly looking like that won't be necessary.

Key Takeaway

The developments this week show that advanced AI models can be developed with less reliance on Nvidia’s high-end, high-cost flagship GPUs. AMD's MI300X chips are on par with H100s, but cost considerably less.

AMD could be primed to benefit from demand for cheap, yet powerful chips to build the newest AI models. With its stock down 34% over the past year, it could be an excellent time to buy AMD stock, no matter what its quarterly results show.

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