Despite the significant appreciation in stock price and valuation, AMD shares could, very well, continue to rally and put investors in a good position. Let’s take a closer look at my AMD stock analysis and see what may be the key driving factors here.
AMD Stock Analysis: AI Moves
2024 will be the year AMD finally breaks the monopolistic hold Nvidia (NASDAQ:NVDA) has had on the advanced chip market for artificial intelligence. Because these AI chips are still in high demand, in North America, Europe and Asia, AMD will likely reap a significant profit upon entrance into the space.
The chipmaker announced the MI300x GPU chipset almost a year ago in their second quarter 2023 earnings report. To follow that up, in their third quarter earnings report, AMD announced it expects to sell $2 billion in AI chips next year. In December 2023, AMD announced a new swath of AI chips: the Instinct MI300X accelerator and the Instinct M1300A accelerated processing unit. These work to train large-language models, and AMD CEO Lisa Su said these chips are comparable to Nvidia’s H100 but are “better on the inferenc[ing].”
The chip maker also announced the new Ryzen 8040, meant for next generation laptops, and these will provide high-performance AI processing power..
The Chip Maker Gets Love from Wall Street
After AMD’s initial announcement of its foray into the AI space, 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 are now becoming 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. Overall, Wall Street is rating AMD’s shares as a “Strong Buy,” and the average 12-month target price of $191/share implies a 10% potential return at the chipmaker’s current price.
Of course, 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.
Valuation Remains in Check
AMD shares rose more than 127% in 2023, and they have continued their rise in 2024. That means valuation has also appreciated in tandem. The chipmaker’s shares are trading at around 47.8x forward earnings. For comparison, Nvidia’s shares are trading significantly cheaper at 35.4x forward earnings. The reason for this is most likely due to AMD’s late entrance into the AI market. Yes, the chipmaker is planning to sell $2 billion worth of AI chips this year, but until they are actual numbers are released, it’s going to be difficult to predict the actual demand for these chips.
I believe as AMD AI chip product ramps up in sells and demand increases, the company’s valuation will make more sense. Put slightly different, the chipmaker’s valuation is high but does not seem to be in risky territory.
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.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.