Advanced Micro Devices' (AMD +3.50%) stock surged 3,240% over the past 10 years. The underdog chipmaker once struggled against Intel and Nvidia, respectively, in the x86 CPU and discrete GPU markets, but it turned around its business under Lisa Su, who took the helm as its CEO in 2014.
Su drove AMD to redesign its PC CPUs, sell more custom accelerated processing units for gaming consoles, and keep pace with Nvidia with cheaper GPUs. It also rolled out high-end CPUs and GPUs for AI-oriented data centers.
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From 2014 to 2024, AMD's revenue rose at a compound annual growth rate (CAGR) of 17%. It turned profitable again in 2018 and its earnings per share (EPS) grew at a CAGR of 21% over the following six years. That robust growth was driven by its development of new chips, its manufacturing partnership with Taiwan Semiconductor Manufacturing, and its market share gains against Intel -- which struggled with ongoing shortages and delays -- in the x86 CPU market.
From 2024 to 2027, analysts expect AMD's revenue and EPS to grow at a CAGR of 20% and 73%, respectively. That robust growth should be fueled by the stabilization of the PC market and its rising sales of data center CPUs and GPUs. Assuming it trades at a reasonable 30 times trailing earnings by the end of 2027, its stock price could rise nearly 50% and lift its market cap from $175 billion to $260 billion. That would be an impressive rally, but two other chipmakers -- which are slightly less valuable than AMD today -- might generate even bigger gains and eclipse its market cap by the end of 2027.
1. Arm Holdings
The first candidate is the U.K. chip designer Arm Holdings (ARM 0.58%), which currently has a market cap of $144 billion. Arm designs power-efficient chips for mobile devices, vehicles, Internet of Things (IoT) gadgets, and other electronics. Its mobile chip designs, which it licenses to other chipmakers, are used to produce about 99% of the world's premium smartphones.
NASDAQ: ARM
Key Data Points
Arm generates most of its revenue from patent royalties and licensing fees, and most of its recent growth has been driven by the market's robust demand for its AI-optimized Armv9 chip designs across the smartphone, cloud, and auto markets.
Arm also plans to launch its own first-party data center CPUs, which will be manufactured by a third-party foundry like TSMC, this year. It's already secured Meta Platforms as its first customer, and it could eventually pull other tech giants away from other data center CPU makers like AMD and Intel.
From fiscal 2024 (which ended in March 2024) to fiscal 2027, analysts expect Arm's revenue and EPS to grow at a CAGR of 23% and 83%, respectively. Arm's stock might look incredibly expensive today at 469 times its fiscal 2024 earnings and 45 times its trailing sales. But if it maintains those hypergrowth valuations, it could eclipse AMD's market cap.
Assuming it matches analysts' expectations for generating $6 billion in revenue in fiscal 2027 and it maintains the same trailing price-to-sales ratio, its market cap could hit $270 billion over the next two years. If the market's demand for its AI-optimized chip designs and first-party AI chips exceeds Wall Street's expectations, analysts could hastily raise their long-term estimates -- and its stock could fetch an even higher valuation.
2. Micron Technologies
The second candidate is Micron Technologies (MU 0.23%), one of the world's top memory chip makers with a market cap of $104 billion. It isn't the biggest memory chipmaker, but it produces denser chips than most of its larger competitors.
NASDAQ: MU
Key Data Points
Micron's growth mirrors the memory chip market's boom-and-bust cycles. Its last bust happened in 2023 as the PC market stalled out, the 5G upgrade cycle for smartphones cooled off, and companies prioritized their purchases of AI-oriented GPUs over new memory chips. That's why its revenue plummeted 49% in fiscal 2023 (which ended in August 2023) and it posted a net loss.
But in fiscal 2024, its revenue surged 62% and it turned profitable again. That recovery was driven by the stabilization of the PC and smartphone markets, as well as robust sales of solid-state drives and high-bandwidth memory chips for data centers to support the demands of new AI applications.
From fiscal 2024 to fiscal 2027, analysts expect its revenue and EPS to grow at a CAGR of 21% and 150%, respectively, as that boom continues. Micron currently trades at just 15 times this year's earnings.
If Micron matches analysts' expectations and still trades at 15 times earnings by the end of fiscal 2027, its stock price could rise nearly 80% to $165 and boost its market cap to about $185 billion. But if it's valued at a more generous 25 times earnings, its stock price could nearly triple to $275 and boost its market cap to more than $300 billion.
All three chipmakers could still be great investments
It's interesting to see if Arm and Micron surpass AMD's market cap, but investors shouldn't fret too much over those valuations. All three chipmakers still have plenty of irons in the fire, and they could be sound investments over the next two years.
