As a leading chipmaker, Advanced Micro Devices (AMD +1.20%) has become a company to watch as its hardware becomes crucial to the development of multiple high-growth industries. The semiconductor company's stock soared more than 700% in the last five years as its position strengthened across the tech industry.
For instance, AMD has consistently stolen central processing unit (CPU) market share from Intel over the years. Since 2017, Intel's CPU market share decreased from 81.9% to 62.8%. Meanwhile, AMD's has climbed from 18.1% to 35.2%. The company's growing position in CPUs boosted its presence in high-growth sectors like artificial intelligence (AI) and cloud computing.
As a result, this tech giant is an increasingly attractive investment as these industries develop. Here's why AMD's stock is a screaming buy this year.
A solid outlook in AI
Since the launch of OpenAI's ChatGPT in November 2022, all eyes have been on the AI market. The industry is expected to explode as technological advances could see AI used to enhance countless industries. AMD's biggest competitor, Nvidia, has so far taken the lead in the sector, becoming the primary chip supplier to ChatGPT. However, the AI market is projected to grow at a compound annual growth rate of 37% through 2030, suggesting it's still early days for the industry, with plenty of market share up for grabs.
AMD pivoted its business to AI development this year, calling the technology its No. 1 strategic priority going forward. The company's diverse line of chips includes hardware, such as CPUs, graphics processing units (GPUs), and data processing units (DPUs), which are crucial for running AI workloads. The company's powerful chips caught the eye of Microsoft, which is reportedly supporting AMD's AI expansion to create an alternative to Nvidia.
NASDAQ: AMD
Key Data Points
According to a report from Bloomberg, the Windows company is bolstering AMD's AI efforts by providing engineering resources. The partnership is good news for AMD investors, as Microsoft is one of the biggest names in AI right now. The company is the largest investor in OpenAI, which allowed it to integrate the start-up's AI technology across its business, including its Office productivity suite, cloud platform Azure, and search engine Bing.
Microsoft's guidance could prove incredibly lucrative for AMD in the long term and set it on a path to steal market share from Nvidia.
The PC market appears to be on a recovery path
In addition to potential in AI, AMD is likely to profit from the recovering personal computer (PC) market. Throughout last year, an economic downturn caused steep declines across the industry. Consequently, revenue in AMD's client segment declined 10% year over year in fiscal 2022, which it attributed to poor market conditions.
However, Bernstein analyst Stacy Rasgon noted on May 16 that while the first quarter of 2023 was "still ugly" for the PC market, it was "less ugly" than Q4 2022. Rasgon wrote that PC shipments hit about 40 million in the first quarter of this year. Although the figure is significantly lower than the 60 million shipments in Q1 2022, sales equaled pre-COVID Q1 levels. The marginal improvement suggests the market is trending up and could normalize in late 2023.
The positive news boosted AMD shares by 12% from May 15 to May 19, as investors have grown confident over the company's outlook.
Is AMD a buy?
One of the biggest reasons to invest in AMD is that its stock is a better value than Nvidia, yet it still allows investors to back the same high-growth markets. The table below shows how AMD's forward price-to-earnings ratio is nearly half of Nvidia's, making its stock a bargain in comparison.
Data by YCharts. PE Ratio = price-to-earnings ratio.
Alongside vast potential in AI and improvements in other parts of its business, AMD stock feels like a no-brainer for investors looking to profit from the growing demand for chips across the tech industry.
