Advanced Micro Devices (NASDAQ:AMD) stock has emerged as Nvidia’s (NASDAQ:NVDA) main AI market. The focus shifts to how this will affect Nvidia’s market share. Meta (NASDAQ:META) and Microsoft’s (NASDQ:MSFT) planned switch to AMD chips, representing 60% of Nvidia’s sales, indicates significant potential shifts.
In the AI surge, AMD trails only Nvidia, which is known for its rapid growth. With AI’s rapid growth, AMD holds promise as the second-largest AI chip player. Considering this, let’s dive into why AMD stock remains an excellent option for investors looking for exposure to this space.
AMD’s Recent Decline May Be Short-Lived
AMD stock is up meaningfully on the year (roughly 28% higher), but still clearly trails the likes of Nvidia and other AI stocks. This relative valuation gap has been growing, and makes AMD stock an attractive option for growth-at-a-reasonable-price investors, who have clamored to own this stock at lower levels.
Concerns around China’s chip replacement strategy briefly impacted prices, and Nvidia’s release of next-generation Blackwell GPUs certainly altered some investors’ view of the competitive landscape of this industry.
That said, it’s a global game, and though China makes up around 15% of AMD’s sales, there’s a lot to like about the company’s relative positioning in the PC market, which appears to be stabilizing.
A recent surge in global PC demand bodes well for AMD’s client processor business. Similar growth prospects loom in server CPU and GPU markets.
AMD’s server CPU market share rose to 23% in 2023 from 17.6% a year prior, driven by solid demand for EPYC CPUs, noted CEO Lisa Su.
The company noted a rising adoption of EPYC CPUs for inferencing tasks. The company’s server CPU growth is sustained, aligning with a projected 26% annual growth in AI server demand until 2029.
AMD experienced a robust demand for AI GPUs, raising its data center GPU revenue forecast to $3.5 billion from $2 billion.
Management expects surpassing this figure because of an enhanced supply chain. These factors position AMD favorably to exceed analyst forecasts.
AMD Expects More Growth
In its Q4 2023 report on January 30, 2024, AMD projected Q1 2024 revenue to come in at $5.4 billion, nearly matching the prior year’s $5.35 billion. The semiconductor company sees a 52% non-GAAP gross margin, slightly higher than 2023’s 50%. When talking about revenue, experts expect a much lower number of around $5 billion.
With the potential AI-related advantages mentioned, AMD may surpass market expectations significantly.
Its recent decline lowered the company’s valuation, with AMD stock now trading at 49-times forward earnings and less than 13-times sales.
While expensive, AMD remains the relative value play in the chip space right now, making this an attractive option if the company can blow out earnings expectations in the coming quarters.
AMD Stock Looks Like a Solid Bet
AMD trails Nvidia in AI but possesses potent AI accelerator designs and is leveraging third-party manufacturing solutions.
If AMD gains AI market share, it may move up in terms of investor discussions alongside Nvidia. Hence, the shift led to reinvestment in undervalued stocks favors AMD, at least right now.
Of course, plenty of downside is possible, if the company disappoints in its coming quarterly earnings reports. However, I remain bullish on this stock for now, and believe the AI market is big enough for two players to benefit. Right now, the market disagrees.
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.
