Three weeks into the New Year, and Advanced Micro Devices (NASDAQ:AMD)stock looks like an unstoppable growth play and one of the best AI trades. Since the year’s first trading day on Jan. 2, AMD stock has gained 26%, outpacing nearly all other microchip and semiconductor companies.
Even Nvidia’s (NASDAQ:NVDA) shares, which are up 23% ytd, have trailed AMD’s gains. The current bull run continues a pattern of outperformance that has made the company’s stock a great long-term investment. In the past 12 months, AMD stock has increased 150%, bringing its five-year return to nearly 700%. And more gains look likely in 2024.
Ryzen Chips and AMD Stock
AMD stock has been rallying ever since the company unveiled its latest AI microchips in early December. Since AMD introduced the “Ryzen 8040” chips on Dec. 6, its share price has gained 35%.
Analysts and investors have high expectations for the new microchips that promise to bolster the capability of various AI applications by as much as 60%, and expect demand for the chips to be strong worldwide. The new chips are already being incorporated into laptops and personal computers made by companies such as Dell (NYSE:DELL) and HP (NYSE:HPQ).
The Ryzen 8040 chip comes on the heels of AMD’s other new AI-focused chip, the MI300X accelerator. That chip is used in data centers and servers and is meant to compete head-on against rival Nvidia’s AI data center chips.
AMD announced last fall that Meta Platforms (NASDAQ:META) and Microsoft (MSFT) have already placed orders to purchase its MI300X chip. Executives have also said that they expect data center microchips to generate revenue of more than $2 billion this year.
Earnings Will Be Key
All eyes will be on Advanced Micro Devices next earnings print that’s scheduled for Jan. 30. If there is a miss, the stock could sharply pull back after its big rally in recent weeks.
However, stronger than expected results for the final months of last year and AMD stock can be expected to continue running higher. The good news for investors is that AMD’s earnings in recent quarters have been strong and surpassed the consensus expectations of analysts who track the company’s progress.
For its third-quarter financial results, AMD beat forecasts, reporting earnings per share (EPS) of 70 cents versus 68 cents that was expected by analysts. Revenue in the quarter came in at $5.8 billion compared to $5.7 billion that was expected.
The company’s overall sales were up 4% from a year earlier. The Q3 results didn’t include sales of the MI300X or Ryzen 8040 chips. As mentioned, AMD gave a robust outlook for 2024, saying it anticipates $2 billion in sales for its high-end graphics processing unit (GPU) chips.
Taking Market Share
Another strong segment for AMD continues to be its client group that includes microchip sales for personal computers. That business unit saw its sales rise 42% year-over-year to $1.5 billion in Q3.
AMD plans to continue taking market share from Nvidia in the server chip segment and rival Intel (NASDAQ:INTC) in the market for chips that power PCs and laptops. Analysts are forecasting that AMD will report earnings growth of 7.4% for Q4 2023 and 14% for the current first quarter of 2024.
Video game consoles also remain an important growth driver for AMD and its chip business. Currently, AMD controls 83% of the market for chips used to power video games, and the company is the exclusive supplier of microchips for both the PlayStation 5 and Xbox series of video game consoles.
Going forward, both the computer and video game markets can be expected to drive demand for AMD’s chips, especially as they incorporate a growing amount of AI capabilities.
Buy AMD Stock
While it might be intimidating to buy a stock after a big move higher, investors should have no such qualms when it comes to Advanced Micro Devices.
The current consensus among 45 investment analysts who cover the company is to buy AMD stock. There is not a single sell rating on the company’s shares.
With its new microchips now for sale and its ability to compete head-to-head against Nvidia for AI chip supremacy, as well as take share from Intel in the PC market, the year ahead looks likely to be very prosperous. AMD stock is a buy.
On the date of publication, Joel Baglole held long positions in NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
