Advanced Micro Devices (NASDAQ: AMD) has been a standout on Wall Street, riding the wave of excitement generated by the thriving artificial intelligence (AI) sector. AMD’s stock surged 87% since March of last year and continues its meteoric rise, boasting a 22% increase since the beginning of 2024.
The surge in AI interest, fueled by the introduction of OpenAI’s ChatGPT, has spurred tech companies to pivot their strategies towards this burgeoning market segment. This frenzy has, in turn, elevated the demand for graphics processing units (GPUs) essential for AI model training.
While AMD initially lagged behind its competitor Nvidia in the AI space, it is swiftly catching up through significant investments, setting the stage for substantial growth in the years ahead.
1. Capitalizing on AI’s Far-Reaching Potential
The AI market has blossomed to nearly $200 billion in recent times and is forecasted to maintain a remarkable compound annual growth rate of 37% up to 2030. By the decade’s end, this industry could near the $2 trillion mark.
With Nvidia’s dominant presence in AI GPUs, accounting for around 90% of the market, AMD faced a formidable challenge. Nevertheless, AMD’s response has been robust, epitomized by its recent unveiling of the MI300X AI GPU. This innovative chip has already attracted major industry players like Microsoft and Meta Platforms.
2. Establishing Dominance in AI Segments
Despite AMD’s robust investments in AI, the full impact has yet to manifest in its earnings. However, promising signs emerged in the company’s latest financial report, indicating a positive trajectory. In the fourth quarter of 2023, AMD’s revenue surged by 10% year-over-year to $6 billion, outperforming analysts’ projections by $60 million.
Moreover, beyond AI chips, AMD is broadening its foothold in AI-enabled personal computers, leveraging a potential surge in PC shipments expected to be driven by AI integration. IDC anticipates that 60% of PCs shipped in 2027 will be AI-enabled, positioning AMD for significant revenue growth in this evolving landscape.
3. Riding the Recovery Wave in the PC Market
Recent indicators point towards a rebound in the PC market after a sustained period of decline due to inflation spikes. Gartner’s data reveals a modest 0.3% uptick in PC shipments during the fourth quarter of 2023, the first uptick in over a year. This market resurgence is translating into tangible gains for AMD, with its PC-centric client segment reporting a substantial 62% revenue surge in Q4 2023.
4. Forecasting a Bright Future Relative to Competitors
While Nvidia basked in unprecedented growth in 2023, becoming the first chipmaker to breach a market cap exceeding $1 trillion, AMD appears poised to offer compelling returns to prospective investors over the long haul.
Projections for earnings per share underscore this narrative, indicating that while Nvidia might hold a seemingly advantageous position, AMD’s prospective growth cannot be overlooked. Factoring in forward price-to-earnings ratios, AMD’s stock price could potentially rise by 92% by fiscal 2026, outpacing Nvidia’s expected increase of 43%. This signifies that AMD’s growth story, though still unfolding, may offer a more substantial scope for expansion.
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