Given the nature of its business and the sheer size of several of its peers, it's not wild to wonder if Advanced Micro Devices (AMD +6.69%) will be one of the next technology names to become a trillion-dollar outfit. Some investors might even bet that AMD will reach a trillion-dollar market capitalization as soon as 2030. Never say never.
If that's what you're anticipating, though, you might want to tamp down your expectations just a bit. Although direct rival Nvidia (NVDA +1.23%) reached the $1 trillion mark relatively recently, thanks to a leading role in the explosive artificial intelligence (AI) market, Advanced Micro Devices isn't likely to repeat the quick-jumping feat.
Still, that doesn't necessarily mean the stock's not worth owning.
It's easier to hold the lead than it is to take the lead
If you're reading this, then you're likely already familiar with the company. If not, however, Advanced Micro Devices makes computer components. Its core business lines are computer processors and graphics processors, the latter of which are also ideally suited to handle the intense data-crunching demands of artificial intelligence platforms.
It's not a leader of either market though. Nvidia still dominates the graphics processor (and AI hardware) market, while struggling industry pioneer Intel (INTC 1.49%) is still the king of computer processors. In fact, after chipping away at Intel's lead on this front beginning in 2019, AMD's been regularly losing computer processor share again since 2021.
And this dynamic is no small matter.
Think about it. Deserved or not, market share leaders tend to remain in the lead, while market share laggards tend to hold their relative position, too. Why? Chief among these reasons is that dominant leaders also tend to operate at a larger, more cost-effective scale, allowing the market leader to also be a price leader. It's also worth adding that switching to a new product or service provider can be more of a hassle than it's worth for customers.
Connect the dots. If AMD is to have any hope of leapfrogging Intel or Nvidia, it will need to find a way of doing far more than it's doing now. However, doing so won't be cheap or easy, as the company would need to make major investments on two distinct technology fronts rather than just one: conventional computer processors as well as graphics processors (even if they're being used for AI purposes). Making such investments would, of course, be a drag on its business and stock.
Sizing up Advanced Micro Devices' competitors and its future
Fine, but does this mean Advanced Micro Devices can't become a trillion-dollar company by 2030?
Not necessarily. There's plenty of future growth to go around, after all. Mordor Intelligence believes the graphics processor market alone is poised to grow at an annualized pace of nearly 33% through 2029. Markwide Research suggests the worldwide computer processor market will grow at a markedly slower yearly pace of just over 6% for the same basic time frame. But it's still growth. In this vein, the analyst community expects AMD's top line to grow nearly 13% this year before accelerating to a growth rate of 28% next year. Analysts expect comparable revenue growth for at least the next couple of years after that.
Data source: StockAnalysis.com. Chart by author.
But, realistically speaking, is something on the order of $60 billion worth of revenue in 203 enough to pump up Advanced Micro Devices' current market cap of $250 billion to $1 trillion by then?
That's where the stumbling blocks surface. Probably not. Such a move would price shares at a sky-high 16 times sales. And, although it's more difficult to project earnings that far down the road, the market would probably need to support a frothy price/earnings ratio of more than 50 for AMD to become and remain a trillion-dollar outfit at that time. Never say never, but that's a tall order, to be sure.
Or, put in different terms, AMD stock's price would need to quadruple between now and 2030 for Advanced Micro Devices to join the trillion-dollar club by then. That's still a tall order, no matter what the company in question gets right in the meantime.
But is AMD stock a buy?
Here's the thing any interested investor should consider, though: It doesn't really matter if AMD reaches a trillion-dollar market cap by 2030. It doesn't even really matter if Advanced Micro Devices remains in second place in both the computer processor and the graphics/AI processor markets. It's still a great name to own, particularly now that shares have fallen 26% from their March peak.
NASDAQ: AMD
Key Data Points
Analysts think so, anyway. Most of them rate it as a strong buy, with a consensus price target of $191.80. That's 25% above the stock's present price.
There's a bigger takeaway buried within this message about AMD, of course. That is, worrying about how one company's market cap stacks up against another's prioritizes the wrong thing.
See, your focus as an investor should be determining a stock's prospective risk and reward based on the underlying company's competitive strengths and weaknesses regardless of its size or market share. In other words, much of your analysis of any potential stock pick should take shape within a vacuum, with the most important comparison being a comparison to that particular company's own history. And from this perspective, Advanced Micro Devices still looks like a pretty good pick today.
Besides, by 2030, there are likely to be so many trillion-dollar companies that reaching that mark will no longer be a bullish accolade in itself.
