Shares of Advanced Micro Devices (AMD 2.37%) have climbed 159% over the last 12 months, as demand for its data center chips is booming. One analyst doesn't expect the stock's run to end just yet.
On Thursday, analysts at Mizuho Securities maintained a buy rating on the stock and raised the near-term price target to $235 from $200. The new price target is 12% above AMD's current share price of $211 per share.
Here's why the stock could hit new highs in 2024.
Is the stock a buy?
AMD has seen its valuation soar recently. Its forward price-to-earnings (P/E) ratio is currently 57, which is over twice the average stock. A year ago, AMD's forward P/E was 32.
Investors are paying up due to accelerating earnings growth. In the fourth quarter, AMD's revenue grew 6% year over year, but strong demand for high-margin data center chips pushed earnings per share up from just $0.01 in the year-ago quarter to $0.41.
AMD recently launched the new Instinct MI300 graphics processing units (GPUs) aimed at artificial intelligence (AI) workloads. Management expects data center GPUs to bring in $3.5 billion in revenue this year, but investors are looking ahead to much bigger numbers over the next few years.
What's really fueling the stock is the expectation that AMD is at the front of a long-term upgrade cycle happening in the data center market to prepare for huge increases in computing power for AI. Nvidia has given the figure of $1 trillion worth of annual data center spending, while AMD has recently used a lower estimate for its addressable market of $400 billion through 2027.
The AI infrastructure opportunity was valued at almost nothing a few years ago and is now a booming industry of its own. The growth opportunity is large enough for AMD's stock to chase new highs for years to come.
