The Advanced Micro Devices (NASDAQ:AMD) stock outlook is pretty solid. Artificial intelligence continually reveals new opportunities for growth and t’s clear there will be more than one pathway to profit and several winners. AMD is going to be one of them.
The chip maker may play runner-up to industry leader Nvidia (NASDAQ:NVDA) in AI but its recent fourth-quarter earnings report shined a bright light on how it will succeed and grow. My AMD stock outlook suggests the core of the company’s excellence will be the data center segment. It still has room to expand its position in PCs and gaming, too, but data centers are the immediate profit center.
The AMD Stock Outlook
Fourth-quarter earnings were solid but like Intel (NASDAQ:INTC) before it, AMD warned of softness in the PC market for the first quarter. It foresees weak central processing unit demand and expects the gaming business to suffer ongoing contraction.
After five strong years, the gaming market is taking a deep breath. That will slow down growth in the immediate future. Experts also predict weakness in embedded chips sales for at least the first half of 2024.
Data center revenue, though, is on a tear. Previously, AMD expected sales to be flat moving from Q4 to Q1 with revenue exceeding $2 billion for the full year. Management predicts the segment will rise in Q1 and generate up to $3.5 billion in 2024 and that could be conservative. It might be why AMD stock fell after the earnings release despite the solid gains it reported.
AI is the real driver behind this growth. CEO Lisa Su calls the technology “a once-in-a-generation transition that will reshape virtually every portion of the computing market.”
The exciting part is that this is still top-of-the-first-inning stuff. It’s only just getting started and the possibilities appear limitless.
Achieving Record Growth
Fourth-quarter data center revenue jumped 38% from last year to $2.3 billion. That was also a 43% increase sequentially. For the full year segment revenue was $6.5 billion and marked a record for the chip maker.
The increases were driven by exceptional growth from AMD’s Instinct GPUs and the fourth-generation EPYC CPUs. Moreover, with its AI-powered MI300X GPU hitting the market, data center GPU revenue far exceeded management guidance of $400 million.
Together with the significant uptake Advanced Micro Devices also saw in its embedded chip market, the two segments accounted for over half of total revenue for the year.
The chip maker also gained share in the server market and maintained its industry-leading position as the largest provider of adaptive computing solutions.
It is well known that Microsoft (NASDAQ:MSFT) infused all of its products and services with OpenAI’s ChatGPT generative AI technology.
In particular, its Bing search engine (now called Copilot) and Azure cloud services were standout performers for the tech giant. What is less well-known is it was AMD’s MI300X chip powering AI’s capabilities.
A Finger in Many Pies
That’s why Advanced Micro Devices will be a long-term leader. It already possesses significant dominance in several markets. Nvidia might have made a name for itself in graphics processing units but AMD’s own expertise in PCs, gaming, and servers positions it to capitalize on them going forward.
AMD makes CPUs for Windows-based computers and holds substantial market share that should persist for some time. Intel’s stumbles in the space give its rival the chance to shore up support.
Arm Holdings (NASDAQ:ARM), for example, is preparing to pick up the pace of new chip introductions. But AMD won’t experience any appreciable losses. The debut of AI PCs forecast to hit the market in 2024 and then flourish thereafter will drive more business for its Ryzen processors.
The AMD Stock Outlook: Pay for Quality
Although shares carry a premium valuation, Advanced Micro Devices is rapidly expanding to grow into it. Wall Street forecasts the chip maker will grow earnings at 25% a year for the next five years. That is two-and-a-half times greater than AMD stock expanded profits for the last five years.
There will be an ebb and flow in valuation but buying now and holding on for the long-term will serve any investor’s portfolio well.
On the date of publication, Rich Duprey did not hold (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.
