Macroeconomic headwinds triggered a stock market sell-off in 2022 that brought shares in many of the most valuable companies crashing down, with tech stocks some of the hardest hit. Enthusiasm around the launch of OpenAI's ChatGPT last November helped change all that, reigniting excitement for the tech sector. Wall Street got bullish about the growth potential for companies with connections to artificial intelligence (AI), prompting a recovery for several stocks.
As a leading chipmaker, increased interest in AI helped send shares in Advanced Micro Devices (AMD +18.37%) up 63% since Jan. 1. The company is still playing catch-up to rival Nvidia (NVDA +5.93%), which still controls about 90% of the AI chip market. AMD wants to change that and has big plans to expand its position in 2024 with the launch of new products.
Meanwhile, AMD hasn't had the easiest year when it comes to other sectors it operates in, and it's trying to contend with steep declines in the PC market. Yet, its long-term prospects remain positive, making now an excellent time to learn more about this tech giant as a possible investment.
Here are three things about AMD stock that smart investors need to know.
1. AMD could make a big splash in AI in 2024
Nvidia snapped up market share in AI thanks to its years of dominance in graphics processing units (GPUs), which are crucial to training and developing AI models. Nvidia's rise in the sector highlighted how far AMD fell behind in AI, with the semiconductor company unable to take advantage of the spike in demand for chips this year. However, it's essential to keep a long-term perspective when investing in AI or AMD.
AMD has held the second-largest market share in discrete GPUs for years, responsible for 10% of the market in 2022. The tech giant likely has a real chance to become a true competitor to Nvidia and massively profit from the industry's growth. AMD management knows this and is gearing AMD up to take a bigger slice of the $137 billion market in 2024.
NASDAQ: AMD
Key Data Points
In June, AMD unveiled the next generation in its MI300 line of chips, which it described as its most powerful GPU ever. The new chip is meant to directly compete with Nvidia's offerings and is expected to begin shipping in the first quarter of next year. AMD's new product comes at a time when many tech companies want increased competition in the market to help bring down the cost of AI hardware.
In addition to a new chip, AMD's acquisition of AI software company Mipsology in August gives it access to a vast network of technology that will allow it to build a computing platform for developers to use in conjunction with its GPUs, similar to Nvidia's CUDA Toolkit.
AMD is ramping up to make a big splash in AI next year, making its stock an attractive option right now.
2. CEO Lisa Su is a strong leader
When Warren Buffett speaks about his investing philosophy, he often mentions the importance of buying stocks in companies with strong leadership. Doing so can give you the confidence to hold during short-term headwinds, knowing executives should be able to skillfully navigate the business into smoother waters. AMD's CEO, Lisa Su, is one of the best reasons to invest in the company, having taken it from the brink of bankruptcy to being one of the world's most successful chipmakers.
When Su took the role of CEO in 2014, AMD had laid off about a quarter of its staff, and its stock price hovered around $2. However, it wasn't long after this that Intel began to stumble, and Su capitalized on market demand. The company launched its Ryzen series of processors in 2017, offering the best price-to-performance available. Consequently, AMD's central processing unit (CPU) market share rose from 18% in the first quarter of 2017 to 35% in the third quarter of 2023. Meanwhile, Intel's fell from 82% to 63%.
Now, Su has her sights set on AI and has promised, "If you look out five years, you will see AI in every single product at AMD, and it will be the largest growth driver." AMD's gradual expansion in the sector this year seems to suggest it's preparing for battle, and I wouldn't count it out as one of the market's biggest players over the long term.
3. AMD's stock is cheaper than Nvidia's
Nvidia share prices have soared 208% since the start of the year, more than triple AMD's stock growth. The swift rise has tanked the value of Nvidia's stock, with its price-to-earnings ratio (P/E) currently at 109. AMD isn't exactly a bargain with a P/E of 54, but it offers far more value than Nvidia. Additionally, AMD's market cap of $170 billion compared to Nvidia's $1 trillion could suggest it has far more growth potential in the coming years and could have more to offer new investors.
The AI market is projected to expand at a compound annual growth rate of 37% through 2030. Nvidia may have gotten a head start, but the industry's expected growth likely means AMD will have plenty of opportunities to steal market share over the long term.
