Advanced Micro Devices (AMD -1.46%) staged a massive comeback over the last few years. The one-time industry laggard has delivered cutting-edge chips and enormous revenue growth for its shareholders.
Over time, that has taken its stock and, by extension, the market cap to the $140 billion level. The question now is whether that growth can make AMD a $1 trillion stock by 2030.
The path to $1 trillion
On a journey from $140 billion now to $1 trillion in eight years, AMD stock has to rise by an average of 28% per year to reach that goal. Admittedly, a lot can happen in eight years, and even the most skilled analyst would likely fail to assess whether it can reach that goal accurately. However, current conditions imply that the goal is achievable.
Nonetheless, AMD has become a leader in CPUs and GPUs. While the gaming sector has struggled in recent months, it has gained market share over one-time industry leader Intel, steadily taking market share in the data center market, according to Mercury Research. Moreover, recent purchases of Xilinx and Pensando have enhanced its supercomputing and edge-computing capabilities, respectively.
In the first half of the year, revenue of just under $12.4 billion surged 70% versus the same period in 2021. The revenue growth helped fuel non-GAAP net income, which increased 73% higher to $3.3 billion in the first two quarters of 2022.
But despite those increases, AMD stock has fallen victim to the Nasdaq bear market. It has lost 45% of its value since peaking last November. Additionally, it currently trades at 37 times earnings. That multiple may not reflect the full extent of its growth and makes it significantly cheaper than Nvidia's 53 P/E ratio. While AMD may still look like a surefire semiconductor stock to buy right now, it may have to maintain its fast growth to keep its valuation that high.
AMD's uncertain path
Analysts' forecasts indicate a slowdown is coming. Although consensus estimates forecast 60% revenue growth this year, they predict that revenue growth will slow to 13% in 2023.
Still, since Fortune Business Insights forecasts a compound annual growth rate for the chip industry at 12% through 2029, the 2023 revenue number is at least consistent with forecasts. Additionally, with a secular bull market occurring in data centers and other segments, AMD appears well positioned for a bounce.
Such conditions could mean that meeting the $1 trillion goal hinges more on CEO Lisa Su, who took AMD from a penny stock flirting with bankruptcy to the powerhouse it is today. She also made the decision to specialize in CPUs and GPUs, a move that brought focus to the business.
Nonetheless, stockholders cannot assume she will stay at AMD permanently. Since finishing her PhD at MIT in 1994, Su has previously worked for Texas Instruments, IBM, and Freescale, which is now part of NXP Semiconductors. She joined AMD in 2012 and served in other roles before becoming its CEO in 2014.
Today, Su is 52 years old. With the success of AMD under her belt, she can still choose many paths. But in the end, only Su can know whether she will stay for AMD for the duration of her career, take on another company turnaround, or retire.
AMD in 2030
AMD's growth rate indicates a $1 trillion market cap in 2030 is possible, but events that no analyst can predict today could derail that growth story.
Still, AMD should deliver where it counts. Even if revenue increases slow to 13% for a time, the company appears positioned to deliver market-beating growth. Hence, even if this semiconductor stock does not make it to $1 trillion by 2030, holding AMD for the next eight years should bring considerable returns.