Artificial intelligence has the potential to reshape a huge portion of the global economy. The game-changing technology could disrupt countless industries while creating new ones along the way.
Many companies will need to invest heavily in AI or risk falling behind the competition. The market for AI products and services is therefore set to boom.
Image source: Statista.
With the AI gold rush underway, the businesses that supply the picks and shovels required to harness the power of this cutting-edge tech stand to profit handsomely. Advanced Micro Devices (AMD 1.36%) is one such company. The semiconductor leader's processors play a vital role in powering the computing systems that make AI possible. And demand for its chips is set to soar.
Here are some more reasons why AMD's shares are an intriguing buy today.
1. New AI products could help AMD win market share
Fellow chipmaker Nvidia (NASDAQ: NVDA) has garnered much of the headlines for its AI prowess. It's easy to see why. The popular semiconductor stock is up more than 165% so far in 2023, following its blockbuster earnings report on May 24.
"The computer industry is going through two simultaneous transitions -- accelerated computing and generative AI," Nvidia CEO Jensen Huang said in the company's earnings release. "A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service, and business process."
While the future is certainly bright for Nvidia, AMD also stands to capture its fair share of this booming market. CEO Lisa Su is reorganizing AMD to prioritize its AI initiatives -- and a slew of promising products that could allow it to wrestle away market share from Nvidia.
AMD's forthcoming MI300 chip should make it a force in the AI arena. The MI300 combines central processing unit (CPU) and graphics processing unit (GPU) cores with fast memory on a single chip package. The high-performance design should help slash the time it takes to train and operate AI models. Demand for the new chip is thus likely to be strong.
2. Valuable partnerships should fuel AMD's growth
AMD's broad product offerings have enabled it to make powerful friends among the tech elite. Amazon, Microsoft, Alphabet, and Oracle all use AMD's chips in their cloud computing operations. So as more companies shift their business processes to the cloud, demand for AMD's products should grow.
AMD also supplies custom processors for the leading game consoles, including Microsoft's Xbox Series X|S and Sony's PlayStation 5. Thus the chipmaker also stands to profit from the long-term growth of the global gaming industry.
Perhaps most interestingly, Microsoft is reportedly working with AMD to spur its AI processor development efforts. The tech titan's reasoning is twofold, according to Bloomberg. Microsoft wants to secure enough chips for its rapidly expanding AI business. It also wants to create a stronger competitor to Nvidia. Both of which are good for AMD.
3. AMD's shares are priced at a discount to its peers
Better still, AMD's stock can be had for about 30 times its projected earnings in 2024. That's a solid price to pay for a top-tier tech stock that's expected to grow its per-share profits by 44% in the coming year.
It's also a bargain compared to Nvidia's current valuation. Following its recent gains, Nvidia's shares now trade for over 50 times forward earnings.
With its stock trading at a steep discount to that of its rival, AMD looks like the better buy today.
