Advanced Micro Devices (NASDAQ:AMD) is one of the top chip stocks investors continue to focus on in 2024. Having officially entered the AI chip race, AMD stock is one of the leading ways investors can gain exposure to this high-upside space. With a track record of producing competitive products and undercutting rivals in other markets, I don’t think this is a chip stock that should be underestimated in terms of the AI race.
The company’s second-quarter earnings report last year highlighted some of the product developments many investors have been waiting for. AMD released its MI300x GPU chipset, which is well-positioned to compete with Nvidia’s (NASDAQ:NVDA) A100 and H100 chips used in large language model (LLM) training.
For 2024, AMD stock has projected $2 billion in AI chip sales. While that may be a tough target to hit, and some investors may be concerned about what could appear to be a stretched valuation, it’s clear that AMD has some strong growth prospects in the high-performance chip space.
Here’s why I still think AMD stock is a buy, and more upside could be on the horizon for this name.
Strong Price Movement Driven By Long-Term Catalysts
This week’s price action around AMD stock has been noteworthy. AMD’s stock price has surged more than 8% over the past week, now hovering near its all-time high set in 2021. This move has been supported by strong optimism around AI-driven semiconductor demand. Analysts foresee substantial AI chip sales, with a $4 billion projection this year.
In Q4, AMD unveiled a new AI server chip, similar to Nvidia’s, used by OpenAI for ChatGPT. Both Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT) plan to utilize these chips for AI inference workloads and cloud computing platforms. This move has led some analysts to put forward price targets in the $200 range, indicating a significant upside from current levels.
Not Backing Down from Competition
AMD is among the chip makers that continue to make tweaks, in a bid to capture more market share. In particular, AMD has adjusted chip prices for its top-tier Radeon cards, specifically the Radeon RX 7800 XT. This move is in response to the recent launch of Nvidia’s RTX 4000-series Super GPUs. Retailers are now offering promotional prices, effectively making these chips cheaper for end users. Accordingly, analysts and investors have grown increasingly bullish on AMD’s forward-looking prospects.
The company’s more powerful Radeon RX 7900 XTX chip has seen fluctuations in terms of demand. However, with optimal pricing, investors appear to be factoring in more robust margins moving forward.
Now, AMD has described this move as a “special promotional pricing program” for Q1 2024 only. However, given historical trends, the RX 7900 XT could maintain this price for some time. Notably, AMD’s latest budget card, the RX 7600 XT, is set to launch on January 24th and is expected to retail for $330.
AMD Stock Remains a Buy
AMD’s recent competitive pricing maneuvers suggest that long-term demand for the company’s chips may materialize. Of course, many of the catalysts investors are relying on to justify the company’s higher valuation are going to materialize over time. Thus, there’s some significant execution risk present when it comes to buying AMD over leading competitors like Nvidia.
That said, it’s my view that AMD’s relatively more attractive valuation and its growth prospects in the lower-priced high-performance chip sector do make this semiconductor stock one to consider. For long-term investors betting on a return of lower interest rates and a more accommodative monetary policy environment, this is a stock to consider right now.
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.
