Still considered as an underdog in x86 CPUs and discrete GPUs, Advanced Micro Devices (NASDAQ:AMD) stock clearly shows it’s ready to compete in the AI chip sector with lower prices.
Despite drawing more power, its older designs are cost-effective. While expanding into data centers, AMD relies heavily on PC and gaming console sales. In 2023, revenue fell 4%, margins tightened, and EPS dropped 24%.
While 2023’s slowdown disappointed, analysts project AMD’s revenue and adjusted EPS to surge by 14% and 37% in 2024. This growth hinges on stable PC sales and the launch of its cost-effective Instinct GPUs for AI applications.
However, despite these prospects, AMD’s stock trades at 57-times forward earnings and 12-times sales, indicating high expectations.
AMD Zen is Coming Very Soon
Asus’s recent BIOS release hints at the imminent arrival of AMD’s Zen 5 processors. The news, highlighted by hardware leaker HXL, suggests a closer release timeline than anticipated. This progress in BIOS support suggests advanced development stages for Zen 5 CPUs.
With cautious optimism, the firmware update hints at the nearing arrival of Zen 5 CPUs. Notably, it supports up to 256GB of DDR5 RAM. However, being in beta with significant changes, most users should avoid it. AMD confirmed Zen 5’s release in the second half of 2024, potentially debuting in Q3.
Contradictory reports suggest Zen 5’s mass production might be delayed until Q3 or Q4. Despite this uncertainty, Asus’s progress signifies advancement. Anticipated reveals during Computex in June may include next-gen Ryzen CPUs. Intel’s (NASDAQ:INTC) potential delay with Arrow Lake processors until late 2024 or early 2025 could pose challenges against Zen 5.
AMD is Set to Outperform the AI Chip Market
AMD followed Nvidia’s (NASDAQ:NVDA) lead in recent months, though its stock price has lagged. AMD stock is up a respectable 20% year-to-date. However, Nvidia is up around 80% over this time frame, after more than tripling last year. It’s an incredible race, but one in which AMD seems to be losing ground, despite strong performance.
Much of this has to do with Nvidia’s recent AI chip announcements, with its Blackwell GPU set to take even more market share on the very high-end corner of the market. AMD’s options are much less powerful, and despite more attractive price tags, could lag in the overall market until it introduces better technology to compete int his realm.
That said, putting AMD’s rise over the past decade in context is important. Under CEO Lisa Su, AMD stock has gained over 6,300% since 2014. The rise of generative AI extends beyond servers to PCs and phones, demanding powerful CPUs and GPUs. This shift sparks competition between AMD, Intel, Samsung, ARM Holdings, Apple, and Microsoft, especially in GPU design.
AMD’s sales doubled this decade, but profits fluctuated, dropping over two-thirds from their 2021 peak in 2023. Analysts forecast AMD’s net income to exceed $5 per share in fiscal 2025, with some predicting over $8.30. With a forward P/E ratio under 22, the outlook is favorable, especially amid the ongoing AI PC boom.
While AMD stock faces stiff competition from Intel and Nvidia, its growth trajectory remains promising under CEO Lisa Su’s leadership. Su’s performance warrants optimism, given AMD’s transformation from a $3 stock to a competitive force in the market.
Focusing on AI
After the release of ChatGPT, AI’s potential became limitless for many sectors. From healthcare down to finance, AI is inevitable and has sparked a wave of advanced research and development. This surge underscores the need to address limitations in current infrastructure, primarily built around CPUs, which struggle to handle complex AI tasks efficiently.
Enterprises and cloud providers like Microsoft (NASDAQ:MSFT) Azure and Google Cloud have shifted focus to energy-efficient servers, favoring Nvidia’s GPUs for AI tasks.
AMD stock anticipates similar gains with its MI300x. Deloitte projects generative AI chips to exceed $50 billion in 2024, with Nvidia and AMD eyeing lucrative growth prospects, estimating a market worth hundreds of billions.
CEO Lisa Su expects AMD’s next-gen AI chips to generate $3.5 billion in sales in 2024, projecting a market value of $45 billion by then, growing to $400 billion by 2027.
On the date of publication, Chris MacDonald 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.
