Artificial intelligence (AI) continues to be a driving force in the stock market in 2024, with specialized semiconductors playing a crucial role in the technology infrastructure. While Nvidia has been a significant player in this space, trading at over $900 per share, investors are now eyeing other AI chip stocks for investment opportunities.
Unveiling the Potential of ARM Holdings Stock
ARM Holdings (ARM), a prominent semiconductor and software design company focusing on CPU products and related technologies, has seen impressive growth in 2024, boasting a year-to-date gain of 72%. The company’s stock surged following a stellar earnings report in which revenue for the third quarter of fiscal year 2024 reached $824 million, reflecting a 14% increase from the previous year.
Looking forward, ARM anticipates further growth with a revenue projection of $850 million to $900 million for the fourth quarter of 2024. Following Nvidia’s investment of $147.3 million in ARM, the company’s market cap has skyrocketed to $133 billion, albeit resulting in a higher valuation compared to its peers.
Although analysts generally view ARM Holdings positively, with a “moderate buy” consensus, the stock has already surpassed its mean price target by a significant margin, indicating a potential shift in market sentiment.
The Dynamic Landscape of Advanced Micro Devices Stock
Advanced Micro Devices (AMD), a key player in the semiconductor industry, has made significant strides in high-performance computing and graphics solutions. With a strategic focus on AI and machine learning, AMD has positioned itself as a formidable competitor in the market.
In 2024, AMD stock has gained 37.5%, showcasing solid performance compared to the broader equities market. The company’s revenue for fiscal year 2023 surpassed expectations, with adjusted EPS meeting Wall Street’s projections. Looking ahead to the first quarter of 2024, AMD expects revenue to hover around $5.4 billion, illustrating a continued growth trajectory.
AMD Emerges as Leading Player in AI Chip Market
AMD’s Surging Growth in AI Chip Sector
AMD is on track to reach over $2 billion in sales from AI chips by 2024, solidifying its position in the rapidly expanding generative AI compute market. This surge comes on the heels of the unveiling of the long-anticipated Instinct MI300 Series accelerator family in December. Designed to tackle substantial workloads in AI applications, the MI300 is expected to outshine competitors in AI inference tasks post-training. AMD’s CEO Lisa Su highlighted industry-leading capacity and bandwidth, setting the stage for potential competition against Nvidia’s dominance in the AI chip arena.
Analyst Sentiment and Market Positioning
Despite certain stretched valuation multiples, AMD’s stock remains attractively priced compared to ARM at current levels. With a forward price/sales ratio of 12.68 and a PEG ratio of 1.15, AMD presents a compelling investment opportunity. Analyst sentiment toward AMD is notably positive, with a consensus rating of “strong buy.” Out of 33 analysts, 27 recommend a “strong buy,” 1 suggests a “moderate buy,” and 5 advise a “hold.” However, similar to ARM, AMD currently trades above Wall Street’s mean price target of $187.17.
Comparing ARM Holdings and AMD
In the debate between ARM Holdings and AMD as potential investments in the AI chip realm, AMD emerges as the more favorable option at present. While ARM’s innovative chip architecture positions it well for the AI era, its lofty valuation raises concerns about the sustainability of its upward trajectory. On the other hand, AMD presents a more reasonably valued opportunity relative to its growth potential and holds a robust position in the AI chip market. At existing levels, AMD appears poised to deliver better performance in the short run, making it the preferred choice for investors seeking exposure to the AI chip sector.