AMD, AI & The Activist Investor

AMD beat Wall Street’s expectations last month, pushing the share price back above the 200 day moving average for the first time since March 2022. Activist Dan Loeb has just taken a passive stake in the firm. What’s next for the chipmaker?

Initially enthusiastic price action on the back of the earnings report faded and price drifted lower, retesting the 200 day moving average and the prior range highs from above. Buying interest looks to have picked up at the area, so is this a sign of things to come?

One positive is their growing market share. This Reuters graphic highlights the rapid progress on that front:

Slower PC demand has weighed on many chipmakers since the pandemic-induced Work-From-Home boom, although revenues have risen elsewhere to offset this, particularly via the uptick in cloud-based computing and servers.

AMD Chair and CEO Dr. Lisa Su gave an upbeat summary of the year:

“2022 was a strong year for AMD as we delivered best-in-class growth and record revenue despite the weak PC environment in the second half of the year. We accelerated our data center momentum and closed our strategic acquisition of Xilinx, significantly diversifying our business and strengthening our financial model. Although the demand environment is mixed, we are confident in our ability to gain market share in 2023 and deliver long-term growth based on our differentiated product portfolio.”

This earnings presentation slide lays out the numbers:

Solid top line progress, but the bottom line has suffered as the company has grown. The Xilinx acquisition was an all-share deal valued at $49 billion…

Intriguingly, activist Dan Loeb’s Third Point revealed a passive stake in AMD last week. No official comment was available from Loeb or AMD, but reports suggest that the investor will not seek changes at the company.

Loeb’s fund is credited with forcing wholesale changes at competitor Intel after building a $1 billion holding and pressuring for management changes. Now CEO Pat Gelsinger has struggled to really turn the business around, and Third Point sold their position at the start of 2022.

So, the activist question is there in the background. Will the currently ‘passive’ position in AMD evolve into something more over time?

The future success of AMD could heavily depend on the adoption and success of AI. As is often the case with new technologies, the attraction is obvious, but the costs remain prohibitive.

Morgan Stanley noted the high hurdle for AI to disrupt search engines.

Currently, the cost of running search queries with the leading generative-language AI app is seven times higher than the leading paid search option, due to computing intensity. “The key concern is how much current leaders in the space will have to pay up to make their in-house AI competitive,” says U.S. internet analyst Brian Nowak. “Companies are continuing to ramp up AI investments, which could give an advantage to the leaders with more ability and willingness to invest.”

AMD will present at the Morgan Stanley TMT conference on the 6th of March 2023 with AI sure to be a hot topic and potential driver of the AMD share price.