Dividend Stocks

AMD Stock Alert: Is Advanced Micro Devices the Next Nvidia?

Rising in sympathy with its peers, Advanced Micro Devices (NASDAQ:AMD) popped higher on strong industry and investment implications for semiconductor firms, particularly those manufacturing graphics processing units (GPUs). AMD stock jumped about 10% on Thursday in sympathy with tech rival Nvidia (NASDAQ:NVDA), which just delivered a blowout earnings report.

Undergirding the enthusiasm for GPUs is a potential paradigm shift in the making. While traditional central processing units (CPUs) have dominated the broader tech ecosystem, graphics processors empower various protocols leveraging artificial intelligence. These innovations include natural language models such as the ultra-popular ChatGPT by OpenAI.

As a result, AMD stock swung higher, managing to put distance between it and rivals like Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM), the latter two focusing more on conventional computer chips. AMD is now looking at a return of nearly 86% for the year.

AMD Stock Rises on AI Implications

In an interview with CNBC, Nvidia CEO Jensen Huang spoke about the rising emphasis on GPUs, which represent the “brains” of AI technologies. “Instead of millions of CPUs, you’ll have a lot fewer CPUs, but they will be connected to millions of GPUs.”

Historically, the opposite has been true, states the news agency. Therefore, the potential inversion may be catalyzing the drive away from CPU-associated enterprises to those focusing on GPUs. If so, such a dynamic suits AMD stock favorably.

Long a powerhouse in the GPU sector, earlier this year, PCWorld reported that AMD ranked second in the graphics processor arena with a 9% market share.

Not only that, some of the alpha dogs on Wall Street have enthusiastically endorsed AMD stock. In the first quarter of this year, Dan Loeb’s Third Point opened a position in AMD. Further, in a note to clients in March, Raymond James stated that AMD represents an underappreciated play on AI and machine learning (ML). Analysts expect the company to post positive returns through year-end.

Why It Matters

According to TipRanks, Wall Street analysts peg AMD stock as a consensus moderate buy. This assessment breaks down as 18 “buys,” eight “holds” and significantly zero “sells.” However, it’s also important to point out that not everything points in a decisively positive direction for the semiconductor specialist.

For one thing, because of the sharp lift in AMD stock today, the experts’ average price target now sits at $99.35, implying a 17% downside risk. Further, four days ago, Bank of America Securities’ Vivek Arya reiterated a “hold” rating on AMD with a price target of $120. That’s practically where shares stand right now.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.