Graphics chip and CPU designer Advanced Micro Devices (NASDAQ:AMD) stock has had a tough several days. The chipmaker’s share price has fallen nearly 10% in the past week. Most recently, China’s government announced a ban on Intel (NASDAQ:INTC) and AMD chips from government computers, fanning flames to the “tech war” between the United States and China.
AMD stock still has many good prospects when it comes to artificial intelligence and dominance in the CPU and GPU markets. Below are 3 reasons for investors buy the AMD dip.
AMD is coming for the burgeoning AI market
2024 will be a make or break it year for AMD. The chipmaker announced the MI300x GPU chipset almost a year ago in its second quarter 2023 earnings report. To follow that up, in their January earnings call, AMD announced it expects to sell $3.5 billion in AI chips this year. Because these AI chips are still in high demand in North America, Europe and Asia, AMD will likely reap a significant profit upon entering the space.
The company announced a swath of new GPU tailored for AI computing last December. Nvidia’s (NASDAQ:NVDA) recent announcement of its new Blackwell AI chips and product roadmap may put AMD investors on edge. It seems just as AMD is entering the market, Nvidia is advancing further in terms of innovation. While this may be true, AMD can still make a meaningful impact in a market where in one player is dominating.
The AI rally is not yet over
A few weeks ago, the U.S. Federal Reserve recommitted to its 2024 interest rate cuts that it penciled in during the December Federal Open Markets Committee (FOMC) meeting. After a couple months of stronger than expected inflation made market participants skeptical of Federal Reserve rate cuts. Some folks even expected inflation could go higher. With the Fed dispelling these notions, the AI craze will continue to shape the current market rally.
AMD, of course, will benefit from investor interest in AI solutions. While AMD’s shares have slumped in recent weeks, the broad market has continued to climb. Both the Nasdaq and S&P 500 are approaching a 10% gain on a YTD basis. After the market is finished worrying about China’s sudden yet predictable decision, the stock is likely to go back on the rise.
Wall Street keeps its optimism about AMD
Wall Street analysts remain optimistic about AMD’s potential in the burgeoning AI space. There are about 47 analysts covering the stock, of which 35 analysts have given AMD a “Strong Buy” or “Buy” rating. Based on the average price target, AMD’s current share price return potential is around 10%.
This is definitely a different sentiment than what Wall Street analysts were projecting last year. After AMD’s initial announcement of its foray into the AI space in the summer of 2023, Wall Street analysts eventually began to lose hope as the year dragged on. Basically, analysts said, “we’ll believe when we see it.” This was a fair conviction given how volatile and uncertain markets were throughout 2023. However, Wall Street analysts have become increasingly optimistic on AMD shares.
The investment bank Jefferies raised their target price for AMD to $200/share from $130/share. JPMorgan, Goldman Sachs, Baird, and a host of other investment banks also made significant increases to their target prices in late January 2024.
AMD is likely to trade beyond its average price target, especially as the company benefits both from the end of the chip slump and entrance into the novel AI chip market.
On the date of publication, Tyrik Torres 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.
