Wall Street is bullish on Advanced Micro Devices (AMD 0.56%) as it releases a batch of new graphics processing units (GPUs) that are designed to support artificial intelligence (AI). This burgeoning opportunity has sent shares of Nvidia up 230% in 2023, and investors are hopeful that AMD stock, which has nearly doubled this year, will perform similarly in 2024.

AMD also has a big opportunity on the consumer side with its Ryzen processors, so the chipmaker is not lacking for potential growth drivers. That being said, management's latest guidance for 2024 leaves some doubt about the stock's upside potential next year.

AMD's CEO is excited about this opportunity

AMD has been taking market share from Intel in recent years, and it may have taken more last quarter. While AMD's total revenue grew just 4% year over year in the third quarter, client segment revenue grew by 42% year over year and 46% over the second quarter, driven by demand for its Ryzen 7000 series central processing units (CPUs).

AMD's Q3 2023 financial results

Many customers who buy Ryzen CPUs are people who play video games on PCs, but there could be new categories of customers buying AMD-powered PCs for multitasking, video streaming, and productivity software. New software applications that take advantage of AI will require even more powerful CPUs.

Within the PC market, AMD CEO Lisa Su said she is most excited about the opportunity in PCs designed to support AI-heavy applications. "I think we're at the beginning of a wave there. We're investing heavily in Ryzen AI and the opportunity to really broaden sort of the AI capabilities of PCs going forward."

Microsoft has released AI features for Windows, such as Bing Chat and Copilot. The arrival of more software like this will serve as a catalyst for long-term growth in AMD's Ryzen CPU business.

How high can AMD stock go in 2024?

Investors are expecting AMD's momentum in CPUs to carry over to the GPU market as AMD launches a new batch of AI GPUs. This is why the stock has climbed 93% this year, despite slow growth across the business lately.

However, AMD's guidance calls for data center GPU revenue to be just $400 million in the fourth quarter, which isn't much. For 2024, the company expects revenue from that part of its business to reach $2 billion, compared to total revenue of $26 billion based on analysts' consensus estimate.

AMD's guidance leaves some doubt about the impact its new GPUs will have on near-term growth. But investors may have to be patient here. Over the next four years, management expects data center GPU revenue to grow 50% per year. That would result in $10 billion in revenue from that segment by 2027.

Nvidia reported $14 billion in data center revenue last quarter, up 279% year over year, and that was with a limited supply of GPUs available. Nvidia is working hard to make enough chips to meet demand, so there will be plenty of opportunity for two competitors in the data center GPU market.

AMD's offerings will have something different to help them stand out from those of its rival. The new MI300 chips will feature generous quantities of memory bandwidth, which is useful in working with massive amounts of data.

Still, AMD's near-term guidance is a problem for a stock that is currently more expensive than Nvidia on a forward price-to-earnings basis. Unless AMD blows past its guidance in the coming quarters, the stock may have limited upside next year.

AMD PE Ratio (Forward) Chart

Data by YCharts.

If you're thinking of buying shares expecting large gains in 2024, I would be careful. I would only consider buying AMD right now if you plan on holding the stock for at least five years.

AMD previously estimated its long-term addressable market at $300 billion for all chip products in the data center, gaming, and consumer PC segments. That gives it a long runway for growth, and should lead to market-beating returns for patient investors.