Price performance has been quite swingy for Advanced Micro Devices (NASDAQ:AMD) stock which stumbled ahead of its Q3 earnings release in late October. Then, the initial response to results/updates to guidance was negative. Yet as I discussed previously, analysts and investors were not exactly impressed with AMD’s 2023 sales guidance.
This post-earnings pullback quickly turned into a post-earnings rally, which has continued as the market looks ahead to AMD’s upcoming launch of its MI300 line of AI chips. Now, the question is whether this rally can carry on through year’s end and into 2024. Although at first glance it may appear the answers could be “no,” in my view, it’s very possible. With this in mind, read on as I explain why.
AMD Stock and Renewed ‘AI Mania’
Some may say that “AI mania” has peaked, but with stocks with high exposure to the generative AI trend, things appear to be getting into full swing again, and Advanced Micro Devices is no exception.
There has been a lot of excitement this year regarding AMD’s entry into the AI chip space, which is currently dominated by this company’s chief competitor, Nvidia (NASDAQ:NVDA). Now, after months of hope and hype, we now have a clearer picture of the impact of AI chip sales on results in the coming year.
According to CEO Lisa Su, AI chip sales could top $2 billion during 2024. However, while reaching billions in sales this quickly surely isn’t anything to sneeze at, I can still see why some may be skeptical that this catalyst will continue to have a positive impact on the AMD stock price.
Mostly, because unless the company’s forecasts are overly conservative, the impact of AI chip sales on AMD’s overall fiscal performance in 2024, isn’t going to be as strong as the impact of AI chip sales are poised to be on Nvidia’s fiscal results in 2023.
Why the Rally Could Continue
Booming demand for generative AI chips suggests Nvidia will report 103.9% sales growth for its current fiscal year (ending January 2024). Growth is expected to decelerate in the coming fiscal year, yet still comes in at a high level (50.7%).
For Advanced Micro Devices, expected growth, even with its AI chip catalyst in mind, forecasts call for much more moderate top-line growth. Forecasts call for overall revenue growth of only 16.5%. That said, while this expected revenue growth suggests results won’t live up to the hope and hype some allege is at play with AMD stock today, don’t assume a correction is just around the corner.
Not only could shares hold onto these latest gains. More gains may be in store. For one, while revenue growth may only grow by a moderate amount, consensus calls for AMD to report 40.75% earnings growth next year.
Earnings growth of this magnitude will fuel another rally for shares, and further developments indicating AMD meets/beats these forecasts could send shares soaring before the results come in. Not only that, there is a silver lining to this being a slow-burning catalyst.
Bottom Line on This AI Contender
After possibly going from zero to $2 billion next year, sales of the MI300 and related AI chip products and services could keep increasing substantially.
AI-related growth, coupled with a demand recovery for AMD’s non-AI offerings (like chips for gaming devices), may mean Nvidia-sized gains for AMD, with a caveat. Instead of arriving quickly, a manyfold move higher take more time to take shape.
Don’t get me wrong. I’m not saying to take profit with Nvidia, and plow it all into AMD. Hold on tight to any existing NVDA position. The AI chip frontrunner has much more room to run.
What I am saying, however, is that alongside a NVDA stock position, feel free to add a small position in AMD stock. While this AI contender still has much to prove, the potential rewards appear to outweigh the risk.
AMD stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in NVDA.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
