4 Compelling Reasons to Invest in AMD Stock Immediately

4 Compelling Reasons to Invest in AMD Stock Immediately

Advanced microsystems (NASDAQ:AMD) became a Wall Street favorite last year when the rise of artificial intelligence (AI) highlighted the enormous potential of its business. Its stock has soared 87% since last March and has shown no signs of slowing down, rising 22% since the start of 2024.

The launch of OpenAI’s ChatGPT has reignited interest in AI and caused countless tech companies to restructure their businesses to prioritize the developing market. Increased demand for AI services has also boosted sales of graphics processing units (GPUs), as the chips are crucial for training AI models.

AMD was slightly late to the AI ​​party last year while its rival, Nvidia, has taken a head start in the field of AI chips. However, AMD is investing heavily in the industry and could reap significant benefits from its efforts in the years to come.

So here are four reasons to buy AMD stock like there’s no tomorrow.

1. AMD has huge potential in AI

Data from Grand View Research shows the AI ​​market reached nearly $200 billion last year and is expected to grow at a compound annual growth rate of 37% through 2030. The trajectory will see the industry reach nearly $2 trillion by the end of the decade.

With Nvidia’s meteoric rise last year, the company reached an estimated 90% market share in AI GPU, putting companies like AMD behind. However, AMD is gearing up to challenge the chipmaker this year.

Last December, AMD unveiled its new MI300X AI GPU. The chip was designed to directly compete with Nvidia’s offerings and has already attracted the attention of some of the tech industry’s biggest players, with Microsoft And Metaplatforms by registering as customers.

2. Seeking to dominate your own AI field

AMD’s profits do not yet reflect its heavy investments in AI. However, the company’s recent quarterly results suggest it is heading in the right direction. In the fourth quarter of 2023, AMD’s revenue increased 10% year-over-year to $6 billion, beating analysts’ expectations by around $60 million. The company’s AI-driven data center segment saw revenue growth of 38%.

In addition to AI chips, AMD is diversifying its market position by expanding into AI-powered personal computers. According to research firm IDC, PC shipments are expected to see a big increase this year, with AI integration serving as a key enabler.

And a Canalys report predicts that 60% of all PCs shipped in 2027 will be AI-enabled.

If AMD manages to corner the AI ​​PC market, its revenue could increase significantly as the industry grows and demand increases.

3. Improvements in the PC market

In addition to AI growth, AMD is benefiting from the improving PC market. Spikes in inflation have led to a sharp decline in PC sales, with shipments falling 16% in 2022 and continuing to decline through most of 2023. However, recent reports indicate that the market is finally showing signs of recovery .

Data from Gartner shows that PC shipments jumped 0.3% in the fourth quarter of 2023, marking the first increase in more than a year. Market improvements are reflected in AMD’s sales, with its PC-centric customer segment reporting a 62% increase in revenue in Q4 2023.

AMD is on a promising growth trajectory, benefiting from the development of AI and the PC market.

4. Potentially more room to run than Nvidia

With its meteoric growth in 2023, Nvidia became the first chipmaker to reach a market capitalization above $1 trillion. Although AI’s significant potential indicates that Nvidia still has plenty of room to grow, AMD could offer new investors bigger gains over the long term.

Earnings per share estimates seem to support this idea.

4 Compelling Reasons to Invest in AMD Stock Immediately

Chart AMD EPS Estimates for the Next 2 Fiscal Years

This chart shows that AMD’s profit could reach $7 per share over the next two fiscal years, while Nvidia’s could reach almost $36 per share. On the surface, Nvidia appears to be the big winner. However, by multiplying these figures by the forward price/earnings ratios (AMD 49 and Nvidia 38) give stock prices of $345 for AMD and $1,353 for Nvidia.

According to these projections, AMD’s stock could rise 92% by fiscal 2026 and Nvidia’s stock could rise 43%. Nvidia’s growth is promising. However, AMD is too good to pass up. AMD may be at an early stage in its AI journey, but that could mean it has more room to grow.

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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Daniel Cook has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Meta Platforms and Nvidia. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.

4 Reasons to Buy AMD Stock Like There’s No Tomorrow was originally published by The Motley Fool

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