Advanced Micro Devices (NASDAQ:AMD) stock is among the semiconductor names today. The AI race is driving demand for AMD’s core chips, but there’s plenty of other growth factors to consider. AMD doubled its Data Center segment share to $1.3 billion over the past two years. It’s also launching the MI300X, an AI microchip seen as a challenging Nvidia’s (NASDAQ:NVDA) H100.
Additionally, AMD is collaborating with Microsoft (NASDAQ:MSFT), with this partnership expected to drive stronger financial results. It’s widely expected that MI300X sales will affect AMD’s earnings from early 2024 on. For those intrigued by AMD’s prospects, let’s dive into a few reasons why this stock should be in your portfolio.
AMD Teams up with Nvidia
We all know how Nvidia and AMD are top rivals in the semiconductor and AI race. However, these companies are actually working together on a key project, reportedly working on Arm-based CPUs for Windows PCs which might be available as early as 2025.
Microsoft had previously collaborated solely with Qualcomm (NASDAQ:QCOM) for Arm-based Windows 11 versions. This news comes just ahead of Qualcomm’s Snapdragon launch, which may power Samsung’s flagship phones. Microsoft executives are expected to be part of Qualcomm’s announcement.
AMD and Nvidia, alongside Qualcomm, might challenge Intel (NASDAQ:INTC) in the Arm-based Windows device arena, intensifying the competition with Apple’s powerful M1 and M2 chips.
Intel plans to respond with the company’s upcoming Meteor Lake CPUs in December. Thus, plenty of change ought to be expected when it comes to the competitive chip landscape in the coming years.
AMD Is in a Solid Competitive Position
AMD has been gaining ground in the AI microchip market, with its share of the Data Center segment almost doubling to $1.3 billion since 2021. Intel has seen its market share shrink by 40%.
AMD is poised to challenge Nvidia’s AI dominance with its new AI microchip, the MI300X, set to launch this quarter. The MI300X supports up to 192 gigabits of memory, making it capable of handling larger AI models than Nvidia’s H100 chip with 120 gigabits of memory.
Notably, analysts appear to be optimistic about AMD’s future, with price targets around $125 per share and buy ratings the standard for this stock. Indeed, Nvidia leads in the AI chip race, holding a majority market share in this lucrative segment.
However, AMD isn’t giving up, and if its MI300X launch goes well, analysts may be quick to increase their price targets further. Additionally, the company has been focused on enhancing its AI software capabilities, in its bid to compete with rivals. I like where AMD is right now and think it may have the most upside based on its unrealized potential right now.
Excellent Earnings
AMD reported robust Q2 earnings, with earnings per share at 58 cents, surpassing the expected 57 cents, and revenue hitting $5.36 billion, exceeding predictions.
Being a key player in the AI evolution and with expected improvements in inventory issues in the second half of 2023, AMD’s stock surged over 74% year-to-date, outperforming the market. However, despite a generally positive outlook, earnings estimates declined in Q2.
In Q3, the company forecasts $5.70 billion in sales, increased AI R&D investment, all while developing new AI-focused chips and software. Full production of the MI300X microchip begins in Q4, with the earnings impact from this chip expected early next year. AMD’s Q3 earnings report is anticipated around October 31.
Invest in AMD Now If You Haven’t
AMD’s future appears promising. This company is poised to benefit from a recovery in the PC market and a growing enterprise GPU business driven by AI training demand. AMD’s valuation remains reasonable at 25-times forward earnings.
AMD stock has a strong track record, with impressive year-to-date, 12-month, and five-year gains.
With a focus on AI and technology advancements, the stock is set to perform well in the future. AMD stock is a strong buy in the analyst community, and I can’t disagree with the analysts on this one.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
