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AI Chip Wars: Why AMD’s Acquisition Spells Huge Opportunity

Earlier this year, Advanced Micro Devices (NASDAQ:AMD), commonly known as just AMD, was the toast of the town on Wall Street. Lately, however, another chipmaker has effectively taken that title. Yet, a notable acquisition should encourage AMD stock investors to stay in the trade for a while.

The big story in 2023, at least in the technology hardware space, has been the artificial intelligence (AI) chip war. Currently, AMD isn’t the most highly favored competitor in this field. Nevertheless, enterprising investors shouldn’t dismiss AMD, as the company might eventually catch up to its rivals.

AMD Stock Soars but Then Stalls

AMD stock seemed unstoppable in early 2023 when it doubled from $64 to $128. Then, short-term traders turned their attention to Nvidia (NASDAQ:NVDA) and the AMD share price retreated toward $100.

As usual, the market has a short attention span and is always on the lookout for the next shiny object. There’s nothing wrong with AMD as a company. Investors just became obsessed with AMD’s competitors in the AI chipmaker space, and with Nvidia in particular.

One analyst, Tristan Gerra of Baird Equity Research, expressed concerns about AMD’s ability to compete in the AI chip market. Hence, Gerra and other Baird analysts pushed out their “original assumption for meaningful AI market share and ramp timing for the [AMD AI chip] MI300.”

In other words, Gerra feels that Nvidia’s leadership among AI chipmakers will create problems for AMD for the foreseeable future. That’s an understandable concern, and investors might choose to hedge their bets by owning both AMD stock and NVDA stock.

AMD Escalates the War With an AI Startup Acquisition

Overall, Gerra doesn’t seem extremely worried about AMD’s future prospects as a business. The Baird analyst assigned a $125 price target and an “outperform” rating on AMD shares.

Nvidia is likely to dominate the U.S. AI chip industry for a while, but that doesn’t mean AMD is just going to throw in the towel. In fact, AMD just upped the ante with a major announcement.

Specifically, AMD signed a definitive agreement to acquire in order to expand AMD’s open AI software capabilities. This will help AMD accelerate the “deployment of AI solutions optimized for” the company’s Instinct data center accelerators, Ryzen AI processors and other products.

It’s obvious what’s going on here. AMD is taking direct aim at its rivals, including Nvidia. The AI-compatible technology war is far from over, and AMD clearly intends to stay in the battle for a long time to come.

A Hedging Strategy for AMD Stock

Even if Nvidia is a darling of the market right now, there can still be room for more than one AI-compatible component maker. Still, even AMD’s biggest fans must respect Nvidia’s current dominance in the field.

Therefore, I’m proposing a hedging strategy. Investors can own AMD stock but also balance out that position with an equal-sized stake in NVDA stock. That way, you’ll have two dogs in the race and could profit handsomely from the success of two high-conviction AI chipmakers.

On the date of publication, David Moadel 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 Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.