Advanced Micro Devices (NASDAQ:AMD) stock represents a best-in-class microchip and semiconductor company and one of the best ways to play the current boom in artificial intelligence. AMD stock has risen 53% in the last 12 months and gained 526% over five years.
With the exception of archrival Nvidia (NASDAQ:NVDA), AMD has been one of the best-performing chip stocks for investors to own. AMD stock has fallen 27% since March 8. Treating the pullback as a buying opportunity is wise for investors.
Growing AI Chip Sales
The main reason that AMD stock has stumbled is that the company’s financial results, while better-than-expected, have not blown past Wall Street estimates.
For this year’s first quarter, AMD reported EPS of 62 cents, which was only slightly ahead of 61 cents that was expected on Wall Street. Revenue totaled $5.47 billion, which also narrowly edged estimates of $5.46 billion. Sales were up 2% from a year earlier.
While the financial results didn’t knock it out of the park, they contained some important figures that point to a significant growth engine that’s revving up inside the company.
Most noteworthy was that the company forecast AI microchip sales this year of $4 billion. That was double the company’s $2 billion estimate last fall and the second time in six months that AMD revised up its forecast for AI chip sales. This shows surging demand.
Additionally, management at AMD said that revenue at the Data Center unit grew 80% year over year to $2.3 billion due to robust sales of the company’s latest MI300 series AI chips.
The company said it sold more than $1 billion of the new AI chips since they launched last December.
AMD’s overall Q1 results would have been better had it not been for a 48% sales decline in the company’s legacy video game chip segment, which posted revenue of $922 million for the quarter.
Partnerships and Market Share
Another key to AMD’s success and its future growth potential is that the company is striking strategic partnerships with other companies.
Recently, Microsoft (NASDAQ:MSFT) announced plans to offer its cloud computing customers AMD’s AI chips rather than Nvidia’s chips.
Going forward, Microsoft will sell AMD’s main MI300X AI chips through its Azure cloud computing portal.
The Microsoft partnership is viewed as a workable solution as Nvidia’s H100 graphics processing units that power AI applications are increasingly hard to obtain due to sky high global demand.
Partnerships, such as the one with Microsoft, are enabling AMD to gain share in the AI chip market and nibble away at Nvidia’s lead. While AMD still has a ways to go to meaningfully eat into Nvidia’s 75% share of the AI chip market, it is succeeding in taking share from rival Intel (NASDAQ:INTC).
AMD’s sales of AI chips for use in data centers rose 62.5% between 2021 and 2023, while Intel’s sales of AI data center chips declined 30% in the same period.
The MI300X series of AI chips is expected to help grow AMD’s market share further as they offer faster processing speeds and more memory than the company’s previous products.
Buy AMD Stock
Advanced Micro Devices has been a great investment over the years. In the last decade, the company’s stock has risen 3,900%.
Now, the company has a huge catalyst ahead of it with its newest AI microchips, which are already selling well and projected to do $4 billion in sales this year.
Strategic partnerships with the likes of Microsoft and a growing share of the AI chip market position AMD for continued success. As such, 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.
