In the field of artificial intelligence (AI), an action other than Nvidia is starting to attract the attention of Wall Street investors. But is it really worth it?
Nvidia’s Impressive Growth
Nvidia was a $360 billion company just 18 months ago. Today, its valuation reaches $3.3 trillion, thanks to its graphics processing units (GPUs) for data centers specifically designed to handle artificial intelligence (AI) tasks.
Although Nvidia has dominated the AI market, the industry is rapidly growing, and other companies are starting to make their mark. Advanced Micro Devices (NASDAQ: AMD) is one of these challengers.
AMD Actively Focuses on AI
AMD has always produced highly sought-after chips for consumer electronics. Its processors can be found in Sony PlayStation 5 and Microsoft Xbox Series X consoles, as well as in the infotainment systems of Tesla electric vehicles.
Recognizing the potential of AI, AMD has also built a line of data center chips to compete with Nvidia while gaining an edge in another critical segment of AI.
AMD’s Vision for the Future of AI
In the consumer market, AMD sees AI as the biggest turning point for personal computing since the advent of the Internet. They have developed a series of CPUs, GPUs, and NPUs (Neural Processing Units) under the Ryzen brand, already integrated into millions of computers sold by customers like Dell and HP.
AMD estimates it holds a 90% market share in these new technologies, making it a significant player in this emerging market.
AMD’s AI Chip Performance for Data Centers
In the data center segment, AMD launched its MI300 chip lineup last year. The MI300X is a pure GPU similar to Nvidia’s H100, while the MI300A combines CPU and GPU hardware to create an Accelerated Processing Unit (APU).
More than 100 enterprise and AI clients have already deployed the MI300X GPU, including some of Nvidia’s top clients like Microsoft and Oracle. The MI300A, for its part, has been selected by the Lawrence Livermore National Laboratory to power its El Capitan supercomputer.
AMD’s AI-Related Revenues Are Growing Rapidly
The MI300 is the fastest-growing product in AMD’s history, reaching $1 billion in revenue in just six months after its launch. This helped propel the company’s data center revenues to a historic record of $2.3 billion in the first quarter of 2024, an 80% increase compared to the previous year.
Lisa Su, CEO of AMD, now expects that sales of the MI300 series will rise from $3.5 billion to over $4 billion in 2024.
Wall Street Is Very Optimistic About AMD Stock
According to a survey by the Wall Street Journal, among the 49 analysts covering AMD stock, 35 have given it the highest buy rating. Four others are optimistic (overweight), and ten recommend holding. None have advised selling.
While it’s true that the consensus is very positive, some caution against the current price of AMD stock. Based on non-GAAP earnings of $2.67 per share over the last 12 months, AMD’s price-to-earnings (P/E) ratio is 59.7, almost twice that of the Nasdaq-100 technology index.
Forecasts for AMD’s Future
For the year 2024, Wall Street estimates that AMD will deliver earnings of $3.51 per share, which would bring the P/E down to a more reasonable level of 45.5. By 2025, analysts forecast earnings of $5.59 per share, thus reducing the P/E to just 28.5.
In other words, AMD’s stock appears much more affordable for investors willing to consider a long-term outlook. By holding the stock for at least two years, investors can expect substantial returns, as AMD will likely reap the rewards of its AI efforts.
