Since I sold my own shares of Advanced Micro Devices (NASDAQ:AMD), the stock is up almost 10%. It’s up 19% for the year and 125% over the last 12 months. I think there’s more in store for AMD stock.
The reason is Artificial Intelligence (AI). AMD’s Radeon Graphics Processing Units (GPUs) are the chief alternative to Nvidia (NASDAQ:NVDA). While Nvidia has the largest share of the market, AMD is still doing well.
My own decision to sell was based on AMD’s lack of continuing support for an alternativer to the Nvidia CUDA software that’s the “Microsoft (NASDAQ:MSFT) Windows” of AI. That software, called ZLUDA, is now open source.
But I may have just missed a rocket ship.
Your Moment of Zen
While AMD can’t catch Nvidia in GPUs, it continues to gain share against Intel (NASDAQ:INTC) in Central Processing Units (CPUs), the chips that run most PCs.
In the last quarter of 2023, AMD had over one-third of this key market.
It’s still a key market because you can expect cloud upgrades to be followed quickly by client upgrades. Consumers and businesses will need faster machines to process the firehose of data AI applications will generate.
AMD will go into volume production for Zen5, its latest desktop chip, in the third quarter of 2024. One clue that this is coming is that AMD CEO Lisa Su will keynote the June CompuTex show in Taiwan. Nvidia’s Jensen Huang had this gig last year, and it was quite a celebration. He’s from the ancient imperial capital of Tainan. So is Su, who turns out to be a distant cousin.
Once the party ends, the battle with Intel will begin. Zen 5 chips will have circuit lines just 4 microns apart. It should come out ahead of Intel’s competing chip, giving AMD a lead on Christmas season sales. Su’s CompuTex visit won’t be all partying, because Taiwanese OEMs dominate PC assembly as well as chipmaking. That’s why CompuTex still exists while shows based in distribution, like Comdex, have disappeared.
The AMD Rocket
Our Louis Navillier is among those who believe I sold AMD too soon.
He believes a “second year of AI” is in the offing. Cloud upgrades still have room to run.
You also need to add the potential of Zen. Can AMD continue to gain share against Intel?
If Su can gain adequate supplies from the 3 micron process of Taiwan Semiconductor (NYSE:TSM), I think the answer is yes. TSMC should see Intel as a competitor for foundry customers and kicking it in the design market would make good business sense. Besides, Su is a fellow Taiwanese.
This is going to be some business trip.
Early reviews are positive. The Zen5 will be faster than any previous AMD chip, and it will plug into older hardware. This means your gamer son won’t necessarily have to get an entirely new machine at BestBuy (NYSE:BBY). Zen seems to stack up well even against Intel’s fastest upcoming chip, which is dubbed Arrow Lake.
The Bottom Line
My own retirement account remains full of semiconductor makers, as you will see in the disclosure below. Given my age, and the need to move from speculation to safety for retirement, I don’t regret my decision to sell.
But for a younger investor, in their 30s or 40s, AMD stock sets up nicely. It sells for 13 times last year’s revenue, but that’s a fraction of what Nvidia sells for. The price to earnings (PE) ratio looks ridiculous, but it’s coming off a lower-profit year and should do better with its new line-up.
The upgrade cycle for AI is real, and AMD is positioned on both the server and client side to take full advantage of it. Those are good arguments for new money.
As of this writing, Dana Blankenhorn had LONG positions in INTC, TSM, MSFT and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.
