Shares of Advanced Micro Devices (AMD 1.85%) have delivered impressive returns over the past year, rising 64% and crushing the Nasdaq Composite index's gains of 27% by a wide margin thanks to the artificial intelligence (AI)-fueled growth of the semiconductor industry and a turnaround in the company's fortunes of late.

It is also worth noting that AMD stock price is up 22% since the company released its third-quarter 2023 results on Oct. 31. Let's see what has triggered the latest surge in this semiconductor stock and check if it can sustain its momentum over the next year and deliver more upside.

AMD is on track to deliver a big turnaround in 2024

AMD endured a difficult time in the first nine months of 2023 largely because of poor personal computer (PC) sales. The company's revenue during this period dropped 8% year over year to $16.5 billion. AMD's earnings declined at a far more alarming pace, falling to just $0.12 per share from $0.84 per share in the first nine months of 2022.

However, the company's guidance for the current quarter suggests that the worst may be behind it. AMD anticipates $6.1 billion in revenue in the fourth quarter of 2023 at the midpoint of its guidance range, which would be a 10% jump over its revenue in the same period last year. What's more, the chipmaker expects its non-GAAP gross margin to land at 51.5% in the fourth quarter. That would be a slight improvement over the reading of 51% in the year-ago period, suggesting that the steep year-over-year earnings decline that AMD has witnessed in the first nine months of the year may be about to end.

There are two reasons behind AMD's turnaround.

First, the PC market stabilized, and it is expected to grow in 2024. Market research firm IDC expects PC shipments to increase by 3.7% next year, which would be a massive improvement over this year's anticipated decline of 13.7%. AMD has already started benefiting from the PC market's improvements as its client processor revenue was up 42% year over year in the third quarter to $1.5 billion, driven by robust sales of its Ryzen 7000 PC processors.

Moreover, AMD has already made a move into the market for AI PCs, a category that's expected to become big in the long run. All this suggests that AMD's client processor business, which produced just over a quarter of its top line in Q3, could sustain its newly found momentum.

The second reason why AMD seems on track to grow at a healthy pace in 2024 is its improving presence in the market for AI chips. CEO Lisa Su remarked on the company's October earnings conference call:

Based on the rapid progress we are making with our AI road map execution and purchase commitments from cloud customers, we now expect Data Center GPU revenue to be approximately $400 million in the fourth quarter and exceed $2 billion in 2024 as revenue ramps throughout the year.

That's an improvement over the $300 million in AI revenue AMD was anticipating three months ago. More importantly, it won't be surprising to see AMD raise its AI chip revenue estimates as 2024 progresses, as it is expected to corner a nice chunk of AI chip supply from its foundry partner Taiwan Semiconductor Manufacturing, popularly known as TSMC.

Reports suggest that AMD could receive half the number of AI chips from TSMC as compared to rival Nvidia in 2024. In simpler words, AMD could get a third of TSMC's AI chip supply next year. That's a big number considering that Nvidia is the biggest player in AI chips with an estimated market share of over 90%, which is why there is a probability of AMD's AI chip revenue turning out to be more than the $2 billion that it is currently anticipating in 2024.

How much upside can the stock deliver in a year?

According to 39 analysts covering AMD, the stock has a median 12-month price target of $130. That points toward an 8% jump from current levels. However, there is a good chance that AMD could deliver stronger gains.

Its earnings are expected to jump to $3.73 per share in 2024, which would be a 40% increase over this year's estimated earnings of $2.65 per share. Multiplying the projected earnings with AMD's forward earnings multiple of 39, which is in line with its five-year average forward earnings multiple, points toward a stock price of $145 after a year. That would be a 20% jump from current levels.

But don't be surprised to see AMD soaring higher than that, as the company's growing prominence in AI chips could drive stronger earnings growth and help this chipmaker deliver more upside, which is why investors can consider buying more of this stock even after impressive gains over the past year.