A surge in tech stocks ignited by the rise of artificial intelligence (AI) has propelled the Nasdaq-100 Technology Sector up by approximately 55% over the past year, with no signs of slowing. The AI market reached nearly $200 billion last year and is forecasted to grow at a compound annual rate of 37% until 2030, aiming to hit close to $2 trillion by the decade’s end. This bullish trajectory indicates that investing in AI remains a lucrative venture, promising substantial returns despite the remarkable gains seen in the previous year.
One compelling investment avenue is Advanced Micro Devices (AMD) (NASDAQ: AMD), a chipmaker heavily involved in AI development. AMD, known for its 87% stock surge since last March, is betting big on a new line of AI graphics processing units (GPUs) and advancements in the PC market, positioning itself for potential stock price escalations in the near future.
The Rising Fortunes of AMD in Expanding Markets
AMD, historically renowned for its focus on central processing units (CPUs), commanding approximately 36% of the market, has shifted gears towards GPUs – essential components for AI model training, propelled by the rising interest in AI technologies.
Nvidia, AMD’s competitor, gained a significant foothold in AI GPUs last year, snatching a considerable market share. To challenge this hegemony, AMD has launched the MI300X AI GPU, directly competing with Nvidia’s offerings and attracting major industry players like Microsoft and Meta Platforms as clients.
Not content with merely vying for GPU market share, AMD aims to carve its niche in AI by doubling down on AI-powered PCs, a strategic move supported by IDC’s projections of a substantial boost in PC shipments this year, fueled by AI integration. A Canalys report even forecasts that 60% of all PCs shipped in 2027 will be AI-enabled, underscoring the immense potential for AMD’s growth in this sector.
In parallel with the AI sector’s growth, AMD is capitalizing on the resurgence of the PC market. After suffering from declining sales due to inflation spikes, recent market data from Gartner indicates a positive trend, with a 0.3% uptick in PC shipments during the fourth quarter of 2023. AMD’s PC-focused client segment reported a commendable 62% revenue increase in Q4 2023, showcasing the company’s promising trajectory amidst these developments.
AMD’s Bright Future: Projections and Growth Potential
While AMD’s robust investments in AI are yet to be fully reflected in its earnings, recent quarterly results paint a positive picture. In the fourth quarter of 2023, AMD witnessed a 10% year-over-year revenue surge to $6 billion, surpassing analysts’ expectations by $60 million. Notably, the company’s AI-centered data center segment achieved a remarkable 38% revenue growth alongside solid performance in the client segment.
Projections for AMD’s earnings per share (EPS) hint at an optimistic outlook. Estimated earnings of just over $7 per share by fiscal 2026, combined with a forward price-to-earnings ratio of 50, could potentially drive AMD’s stock price to $360, signifying a 97% growth over the next two fiscal years. With a bullish stance on AI prospects and the recovery of the PC market, AMD emerges as an enticing investment opportunity at present.
Considering AMD’s strategic positioning within the AI and PC markets, and the potential for substantial stock growth, investors may find AMD to be a compelling investment option at the moment.