Advanced Micro Devices (NASDAQ: AMD) stock price hit a 52-week high on March 8, but shares of the chipmaker have pulled back more than 15% since then, even though there has been no notable company-specific development in the interim.
Of course, reports that China is reportedly planning to replace chips made by AMD and Intel from Chinese government servers and personal computers (PCs) did weigh briefly on the stock price, but even that shouldn’t be a big problem for AMD in the long run. Here’s why.
Sanctions in China shouldn’t be much of a trouble for AMD
AMD reportedly gets 15% of its total revenue from selling its chips to China. So, any sanctions on sales of its chips in that country may have an impact on AMD’s financials. However, the dynamics of the semiconductor market are such that even if AMD is unable to sell its chips in China, it will have other avenues to sell them.
For instance, sales of both servers and PCs are expected to grow strongly across the globe thanks to the adoption of artificial intelligence (AI). Sales of PCs fell just 2.7% year over year in the fourth quarter of 2023 as compared to the 14% drop for the entire year. The market is set to witness a turnaround in 2024, driven by a new refresh cycle in the enterprise and education markets, as well as the arrival of AI-enabled PCs.
Market research firm Canalys estimates that 48 million AI PCs could be shipped this year, accounting for 18% of the overall market. What’s more, shipments of AI PCs could grow at an annual rate of 44% through 2028 and account for 70% of the overall market. Canalys also points out that AI PCs are likely to command a 10% to 15% premium as compared to traditional machines.
AMD, therefore, has an opportunity to boost both its volumes and average selling price (ASP) of central processing units (CPUs). It is also worth noting that AMD has been taking share from Intel in the PC market. The company controlled 20.2% of the client CPU market in the fourth quarter of 2023, up from 17.1% in the year-ago period, as per Mercury Research.
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