AMD's Secret Sauce: Why This Chip Underdog Is Poised to Dethrone Nvidia – InvestorPlace
Here's why AMD is a chip stock that may be worth adding to your portfolio right now
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Advanced Micro Devices (NASDAQ:AMD) stock is perhaps best known as the key rival to the king of chips — Nvidia (NASDAQ:NVDA). AMD has fallen behind Nvidia since the AI surge. Cooler heads are assessing this sector for good reason.
AMD dominates the personal computing market, with $3.5 billion expected from their Mi300 GPU accelerator alone. Analysts foresee AMD’s robust growth, despite Beijing’s plan to phase out AMD chips from government PCs and servers.
The recent decline in AMD stock presents an attractive entry point. HSBC upgraded AMD to “Buy,” citing the potential of its next-gen AI chips to compete with Nvidia’s Blackwell line. Here’s why I think that call is on point.
AMD has experienced a remarkable recovery since hitting a low in 2015, driven by new products and increased profitability. The stock soared for six years but declined in late 2021 because of a PC sales downturn.
However, AMD has made a comeback, surging in 2023 due to its AI chip launch for data centers. This has placed the company in tight competition with both Intel (NASDAQ:INTC) and Nvidia in the overall chip market.
In 2014, Lisa Su became CEO of AMD and has been the brains behind the transformation of Ryzen PC processors and Epyc server chips. Under her, AMD surpassed Intel in making CPUs at smaller node sizes, now at four nanometers.
Su oversaw significant acquisitions: Xilinx in February 2022 for $49 billion, expanding into data centers, and Pensando Systems in May 2022 for $1.9 billion, enhancing data center capabilities.
AMD’s total addressable market grew to $300 billion from $79 billion in 2020, with projected profit margin improvements, 20% compound annual sales growth for the next three to four years, and rising stock prices.
Its shares surged 68% in a year, driven by AI potential. Sympathy capital appreciation upside has been tied to Nvidia’s success, also boosting AMD stock. Nvidia dominated the AI GPU market, but AMD aims to challenge it with its own AI GPUs and AI-powered PCs.
AMD introduced Ryzen Pro 8000 for desktops and laptops on April 16, making it the sole provider of AI-powered NPUs in business PCs. With rising AI demand, AMD anticipates significant growth.
In other AMD news, a partnership between AMD and ASUS involved the computer company providing 600-series AM5 motherboards ready for AMD’s next-gen Ryzen CPU. This also includes the Ryzen 9000 series.
The performance of AMD’s next-gen AM5 processors remains speculative. Leaks suggest the Zen 5 chip could offer up to 40% performance gains, but its legitimacy is still being determined. Rumors indicate core/thread counts may remain unchanged, suggesting gains will focus on single-threaded performance.
There are 44 ASUS AM5 motherboards listed, covering the entire lineup. Expect better designs for next-gen Ryzen Zen 5 CPUs. Existing motherboards will be fully compatible. The AM5 platform is also committed to AMD until next year, ensuring support for another CPU generation.
Moreover, the Zen 5 Ryzen CPU can also improve performance and features over the 7000 series. It is anticipated to debut during the Computex 2024 and launch mid 2024.
AMD introduced new AI-enabled chips for business laptops and desktops, launching with HP and Lenovo in Q2 2024. These chips allow PCs to run large-language models and apps directly, which is expected to boost the PC market. Increased demand for advanced semiconductors is driven by generative AI technology.
AMD competes fiercely with Intel and Nvidia in the AI PC market, known for its GPU leadership. In January, AMD launched the Ryzen 8000G Series desktop chips, aimed at AI tasks with heavy workloads.
On the same day, Nvidia introduced its “GeForce RTX SUPER” desktop GPUs, with Acer, ASUS, Dell Technologies, HP, Lenovo, and Samsung set to release AI laptops featuring its technology.
For long-term investors looking for a chip stock with AI tail winds, but a strong core business that should continue to outperform, AMD remains a top pick of mine for this reason.
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.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
Technology, Artificial Intelligence, Semiconductor
Article printed from InvestorPlace Media, https://investorplace.com/2024/04/amds-secret-sauce-why-this-chip-underdog-is-poised-to-dethrone-nvidia/.
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