When Advanced Micro Devices (AMD +7.74%) CEO Lisa Su took her position, the company was on the brink of bankruptcy, and its stock hovered around $3 a share. However, the company has come a long way since then, delivering stock growth of more than 2,600%. AMD has massively profited from the success of its Ryzen line of central processing units (CPU), which launched in 2017 and helped it take a significant chunk out of Intel's market share.
The semiconductor company is gearing up to do the same to Nvidia next year, with its sights set on the booming artificial intelligence (AI) market. AMD has massive potential over the long term, making its stock an attractive option right now.
Here's why it's not too late to buy AMD stock.
AMD is preparing to take on Nvidia in 2024
All eyes have been on AI this year. The debut of OpenAI's ChatGPT last November reignited interest in the technology, with countless companies pivoting their businesses to developing the market. Nvidia's years of dominance in graphics processing units (GPUs) perfectly positioned it to claim a 90% market share in the industry, as the chips are crucial to building AI models.
While AMD has long held the second-largest market share in discrete GPUs, its 10% market share wasn't enough to go up against Nvidia in 2023. However, AMD is making moves to come back strong next year, making its stock a compelling long-term buy.
In June, AMD unveiled the next generation of its MI300 line of chips, calling the new product its most powerful GPU ever. The chip will begin shipping in 2024, and comes as the market is desperate for increased competition. Nvidia's dominance has seen the cost of AI hardware soar, with many tech companies calling for alternative, cheaper options. If AMD can deliver better price-to-performance than Nvidia, it could enjoy a significant boost in sales in the coming months.
NASDAQ: AMD
Key Data Points
In addition to new hardware, AMD is striving to offer an equal experience to Nvidia with its recent acquisition of AI software firm Mipsology. The purchase should help AMD build a platform similar to Nvidia's CUDA Toolkit, which developers can use alongside its GPUs to create AI models and complete various computing tasks.
According to Grand View Research, the AI market is projected to expand at a compound annual growth rate of 37% through 2030. The industry's substantial growth potential suggests AMD will have plenty of opportunities to snap up market share, and could have a lucrative future ahead.
A cheaper option compared to other AI chip stocks
Excitement over AI has seen many stocks skyrocket this year, raising the cost of entry for new investors interested in backing the high-growth sector. Nvidia shares have soared 215% year to date, with AMD's climbing 64%. While AI software stocks like Microsoft and Alphabet are still trading at reasonable prices, it's become pricy for anyone looking to invest in a chip stock.
Data by YCharts
However, the chart above shows AMD's forward price-to-earnings ratio (P/E) is the lowest among the four biggest companies active in AI chip development. The table indicates AMD's stock offers the most value among these four companies.
Moreover, AMD's second-largest market share in GPUs suggests it has the best chance at catching Nvidia, and better overall prospects in AI than Amazon or Intel. Amazon only announced its venture into AI chips this past June, and lacks long-term experience. Meanwhile, Intel has floundered in the space in recent years, which doesn't instill much confidence in its ability to compete with Nvidia or AMD.
Prospective investors should be prepared to hold AMD shares for the very long term, as a forward P/E of 38 is still on the high side. However, the launch of its MI300X GPU in 2024 could be a lucrative first step in chipping away at Nvidia's market share.
As the best-valued AI chip stock, AMD shares are an attractive option ahead of the coming release. The company has a solid outlook, meaning it's definitely not too late to buy AMD stock and profit from its projected growth.
