Advanced Micro Devices (AMD -1.00%) has been a company to watch this year as its shares have soared 80% since Jan. 1. The tech giant has benefited from a boom in artificial intelligence (AI), which has highlighted how crucial chipmakers are to the industry's future. AMD has been one of the biggest names in graphics processing units (GPUs), second only to Nvidia, in recent years. These chips are necessary in developing AI models, suggesting that AMD could have a lucrative role in the high-growth sector over the long term.
In addition to AI, AMD is well positioned to profit significantly as the PC market recovers. The industry has been hit hard by macroeconomic headwinds over the last two years but is showing signs of improvement. AMD could see a spike in revenue in 2024 as PC and chip sales soar. As a result, now is an excellent time to learn more about this company and potentially invest in its stock.
So, here are three things about AMD that smart investors know.
1. AMD plans to make a big splash in AI in 2024
The launch of OpenAI's ChatGPT in November 2022 reignited interest in AI and led countless companies to pivot their businesses to developing the industry. Nvidia has so far dominated the market, snapping an estimated 90% market share in AI chips. However, AMD is gearing up to challenge Nvidia next year by launching a new AI GPU.
AMD unveiled the newest addition to its line of MI300 chips in June, described as its most powerful GPU ever. The new chip is designed to compete directly with Nvidia's offerings and comes at a time when the market is growing desperate for alternative chip options. Nvidia's dominance has led AI GPU prices to soar, giving AMD an exciting opportunity to offer better price to performance.
The chipmaker has spent the last year improving its AI hardware and making various acquisitions that will allow it to provide developers with a top-tier experience when building AI models. Its stock could be a better option than Nvidia, with more room for growth in its AI division.
2. The PC market is showing signs of recovery
PC shipments plunged 16% throughout 2022 and have continued falling in 2023. The declines have plagued companies across the industry, with AMD's client segment posting a 10% revenue dip in its client segment last year as central processing unit (CPU) sales faltered.
However, the PC industry is gradually showing signs of recovery alongside easing inflation. In the third quarter of 2023, PC shipments fell roughly 8%, half of what it lost the year before. Meanwhile, the quarter saw AMD's client segment report revenue growth of 42% as operating income hit $140 million.
The spike in chip sales allowed AMD to expand its desktop CPU market share by 5% in Q3 2023 (per Mercury Research), gaining on Intel.
A return to growth in the PC market will be a massive win for AMD over the next year. Alongside its AI expansion, the company could be on a promising growth path.
3. A better bargain than Nvidia
Nvidia has become a favorite on Wall Street this year, with its command of the AI market sending its shares soaring 233% year to date. While its meteoric rise has benefited current investors, it has also significantly raised the cost of entry for new ones. As a result, alternative AI companies like AMD have become far more attractive ways to back the budding market.
Data by YCharts.
The chart above compares AMD and Nvidia's price-to-earnings ratios and price-to-free cash flow. AMD's figures for both metrics are considerably lower than Nvidia's, suggesting AMD's stock offers far more value right now.
AMD shares have risen high this year. However, the company still has plenty of room for growth, and its stock is an exciting buy ahead of its 2024 GPU launch and a recovering PC market.
