AMD’s Current State
Shares in Advanced Micro Devices (NASDAQ: AMD) have risen more than 130% year over year, largely due to a thriving year for artificial intelligence (AI). The advent of OpenAI’s ChatGPT in November 2022 spurred a surge in chip stocks as Wall Street grew bullish about firms developing the hardware for AI models.
Despite its substantial potential in the AI industry, AMD’s earnings have not yet reflected its hefty market investments. Its forward price-to-earnings ratio (P/E) has surged 58% since last January to a pricey 45, while its free cash flow has dropped 47% to just over $1 billion in the same period. This puts AMD’s shares at a less attractive point compared to other AI stocks with better financial standing.
A comparison shows that AMD has the second-highest forward P/E among major AI firms, pointing to it offering lesser value than companies like Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC). It may be wise to explore alternative stocks while awaiting a more favorable price point for AMD’s shares.
1. Microsoft’s AI Strength
Microsoft emerged as a formidable player in the AI arena following substantial investments in OpenAI, granting it access to the start-up’s most advanced AI models. Windows powerhouse Microsoft has successfully integrated AI features across its product lineup, introducing new AI tools to its cloud platform Azure and infusing AI aspects into its search engine Bing and Office software suite, boosting productivity.
Notably, Microsoft has launched Copilot, an AI assistant, through its Microsoft 365 subscription service, priced at $30 per month. This move could potentially lead to substantial earnings surges for the company. With a soaring 64% stock increase year over year and over $62 billion in free cash flow in 2023, Microsoft is poised for a stellar 2024. The company’s significantly lower forward P/E compared to AMD makes it an attractive option for AI investment this year.
2. Intel’s Revival Potential
Intel has experienced a nearly 13% stock decline since releasing its Q4 2023 earnings, despite beating Wall Street estimates with a 10% year-over-year revenue growth. Weak guidance related to the future earnings and revenue has led to this decline, reflecting a shift in the chip market due to the AI boom.
Intel is heavily investing in generative technology, unveiling a range of AI chips, including Gaudi3 and new Core Ultra processors and Xeon server chips. This investment positions Intel as a long-term play in the AI industry. Moreover, with a forward P/E of 32, it is one of the most affordable AI stocks among its peers. Intel’s expanding footprint in AI and business restructuring make it an exciting investment option for 2024, offering better value than AMD.
Leverage your financial future and knowledge about stocks to make informed decisions. It pays to stay keenly informed before diving into any investing decision, and don’t forget to look at various sources to gain insights. Microsoft topped the list of ten best stocks for investors to buy right now, as per the insights, making it an option to consider in 2024. Mark your calendars to revisit progress at a future date. Choose your stocks with due diligence, and let them thrive.
*Stock Advisor returns as of January 29, 2024