Recent advances in artificial intelligence (AI) and cloud computing bolstered semiconductor manufacturers' stocks this year. Chipmakers like Advanced Micro Devices (AMD -0.25%) have rallied investors, with its stock up 75% since Jan. 1. And its crucial role in multiple high-growth sectors suggests its shares still have plenty of room to rise over the long term.
For instance, according to data from Grand View Research, the AI market is projected to develop at a compound annual growth rate of 37% through 2030. With it still relatively early for AMD's expansion into AI, now is an excellent time to learn more about this leading chip company and potentially to invest.
Here are three things about AMD that smart investors know.
1. It has a diverse business model
All eyes have been on AMD's role in AI this year. But the company is home to a varied business, with solid positions across different areas of tech.
Before this year, AMD was best known for its consumer line of PC components, such as graphics processing units (GPUs) and central processing units (CPUs). The tech giant's hardware powers custom-built PCs worldwide, and is particularly popular in the gaming community.
Its CPUs are so successful that they have consistently stolen market share from Intel. Since the first quarter of 2017, AMD's market share in CPUs has risen from 18% to 35%. Meanwhile, Intel's has fallen from 82% to 63%.
Moreover, AMD has gradually become the go-to for tech companies seeking custom chips. The semiconductor company's system on a chip (SoC) provides the graphics and processing power for several devices across the industry. Its high-profile clients include Microsoft and Sony. AMD's SoCs exclusively power these two companies' popular game consoles: the Xbox Series X|S from the former and PlayStation 5 from the latter.
AMD's chips also power leading cloud platforms such as Microsoft's Azure, Alphabet's Google Cloud, and Oracle. The company's diversified business has strengthened its outlook and provided consistent financial growth, with annual revenue and operating income up 264% and 180%, respectively, since 2018.
2. Experts like AMD's AI chips
AMD has spent the first half of this year playing catch-up to Nvidia in AI. The company gained support from Microsoft, with the Windows company providing financial and engineering resources to bolster AMD's AI chip expansion.
Then in mid-June, AMD unveiled its most powerful GPU to date, the MI300X, meant to compete directly with Nvidia's AI products. How the new chip will fare against the competition remains to be seen, but data from the software firm MosaicML suggests AMD isn't far behind.
MosaicML recently compared AMD's MI250 and Nvidia's A100, with both chips one generation behind the companies' flagship AI hardware. It found that AMD's chips could achieve about 80% of the performance of Nvidia's.
And MosaicML said there are currently software updates under development that should bring the MI250's performance up to par with Nvidia's A100. The findings bode well for AMD's recently announced GPU, potentially closing the gap further.
3. It has massive potential for price growth
AMD enjoyed a monster rally this year from bullish investors. While that could suggest its stock has become overpriced, its forward price/earnings-to-growth ratio (PEG) says otherwise, having decreased 63% this year to 0.2. For reference, a PEG lower than 1 often indicates a stock is undervalued, with AMD's projecting more growth ahead.
AMD also looks to be a more reliable way to invest in AI based on its market cap of $182 billion, compared to Nvidia's $1 trillion. That significantly lower market cap could indicate it has more short-term growth potential, making it a safer investment than the competition.
Add to this consistent price growth that has seen AMD's shares rise 590% in the last five years and 2,700% in the last decade, and the company is a no-brainer buy right now. With the power of AI and other high-growth tech sectors, there's no telling how high shares will soar over the next five and 10 years.
