Semiconductor stocks have been performing admirably in 2024, exemplified by the PHLX Semiconductor Sector index’s 25% year-to-date growth despite a recent downturn. Yet, not all players in this realm have experienced soaring returns during this period.
This industry is reaping the rewards of the expanding integration of artificial intelligence (AI) across various sectors, leading to the upward trajectory of chipmakers like Nvidia and Broadcom. Unfortunately, Advanced Micro Devices (AMD) has lagged, with its stock rising only 7% this year, falling behind both the sector and the broader S&P 500.
The Evolution of AMD in the AI Landscape
While AMD’s competitor Nvidia has taken the lead in the market for GPUs utilized in data centers for AI models and applications, AMD has also been carving out its niche in this domain.
In the second quarter, AMD reported a record data-center revenue of $2.8 billion, marking a substantial 115% year-over-year increase. Notably, AMD’s data-center growth stemmed not only from the surging demand for its AI GPUs but also from a rise in Epyc server CPU sales. During the latest earnings call, CEO Lisa Su articulated:
“Cloud adoption remains strong as hyperscalers deploy fourth-gen EPYC CPUs to power more of their internal workloads and public instances.”
AMD is poised to capitalize on the burgeoning AI data center market in dual ways. Firstly, by delving into the AI GPU market, projected to reach a substantial $400 billion by 2027. Although AMD lags behind Nvidia in this segment, the company sold over $1 billion worth of MI300 data-center GPUs last quarter, setting a new record. Furthermore, AMD anticipates selling at least $4.5 billion worth of data-center GPUs in 2024, more than doubling its previous forecast.
In addition, AMD’s foray into the AI CPU market, estimated to generate $410 billion in annual revenue by 2030, presents another avenue for growth. By steadily enhancing its market share, as evidenced by a 5.6 percentage-point increase in data-center CPU market share to 24.1% in Q2 2024, AMD is positioning itself to leverage the burgeoning opportunities in AI servers and PCs.
The Quest for a Trillion-Dollar Valuation
With analysts projecting AMD’s earnings to surge at a compound annual growth rate of 33% over the next five years, the company’s growth prospects appear robust. Assuming an annual earnings growth rate of 25% until 2030, AMD’s bottom line could leap to $12.93 per share, translating to a stock price of $427 after five years based on a forward-earnings multiple of 33.
While this could result in a market cap of $690 billion by 2030, shy of the trillion-dollar milestone, it would still represent a notable achievement for the AI-centric stock.
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Unearthing Hidden Potential
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A Glimpse into the Past
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