Growing at a whopping 70% year-to-date, Advanced Micro Devices (AMD -1.35%) The stock is rising as investors begin to appreciate its potential artificial intelligence (AI) hardware. While the company faces macroeconomic challenges in the PC market, it can make a great alternative to competitors. Nvidia (NASDAQ: NVDA ) As her AI strategy begins to take shape.
Why Advanced Micro Devices?
Founded in the late 1960s, AMD is an American semiconductor company focused on designing and selling computer processors and related hardware at competitive prices. The company’s best-known products include central processing units (CPUs) and graphics processing units (GPUs), which are typically used in PCs, video game consoles, data centers, and other demanding computing tasks.
The launch of OpenAI’s generative AI chatbot, ChatGPT, has sparked interest among hardware companies that can provide the processing power needed to train and run complex learning models. According to analysts at Next Move Strategy, the total AI market could reach a whopping $2 trillion by 2030. And even if companies like AMD capture only a small share of the overall opportunity, they can benefit enormously.
Near-term challenges can lead to long-term opportunities
To be fair, AMD has yet to fully benefit from these long-term tailwinds, as evidenced by its second-quarter earnings. Total sales fell 18% to $5.4 billion due to weakness in the gaming and client revenue segments, reflecting weaker markets for graphics cards, PC and laptop processors. This challenge is somewhat out of the company’s control as it is influenced by macroeconomic factors such as inflation and high interest rates, which harm consumer purchasing power.
That said, management trusts the client processor The market bottomed out They expect macroeconomic conditions to improve in the first quarter of 2023, and in the second half of the year. Further, the company’s long-term AI potential may soon be realized.
While AMD’s rival, Nvidia, currently dominates the market for top-end AI GPU chips, with products like the H100 and A100 (used to train ChatGPT), AMD could soon become a viable contender.
The company recently unveiled its M1300X, an AI chip (called an “accelerator”) designed to train large language models, which is expected to hit the market in the third quarter of 2023. With 192 GB of memory, the product compares favorably to Nvidia’s flagship H100 (which only supports 120 GB) and could help increase AMD’s share of this growing industry. According to CEO Lisa Su, AMD sees AI as its “biggest and most strategic long-term growth opportunity.” And the M1300X can help make that a reality.
A more value-oriented alternative to Nvidia?
with the Price-to-earnings (P/E) multiple At 26, AMD’s stock is roughly in line The S&P 500 Average and even cheaper than Nvidia, which trades for a whopping 47 times forward earnings. AMD’s slow rollout of competitive AI chips may explain some of the disparity in valuations, but the market appears to be underestimating the company. AMD’s new M1300x GPU could become a viable competitor to Nvidia’s flagship chips, leading to a good revenue boost in the coming quarters. The shares look like an excellent buy for value-conscious investors.
Will Ebifung does not have a position in any of the stocks mentioned. The Motley Fool has positions on and recommends Advanced Micro Devices and Nvidia. Motley Fool has a disclosure policy.