Despite being a mainstay of the semiconductor industry and a giant in the sector, Advanced Micro Devices (NASDAQ: AMD) has mostly been overshadowed by its much larger competitor, Nvidia (NASDAQ: NVDA).
Despite this, the heart of AMD’s business provides a compelling bull case for the company and might indicate that investors looking for the next NVDA may not have to look far.
For years, AMD has been known for offering a more cost-effective alternative as its chips were, for the most part, slightly weaker and consumed more energy but were simultaneously much cheaper.
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Though this setup remains true to an extent, the other semiconductor giant has made strides in narrowing the technological gap, particularly when it comes to the boom of 2024 – artificial intelligence (AI).
Could this AMD chip dethrone Nvidia?
AMD’s efforts to catch up and provide a compelling alternative became particularly pointed in early October when the firm unveiled its new Instinct MI325X – designed as a direct competitor to Nvidia’s much-lauded Blackwell.
Should the model prove a major success – a fact that will become known in early 2025 when mass production starts in earnest – customers might indeed turn away from Nvidia, and investors might turn to AMD, hoping it’ll manage something akin to NVDA’s two-year $3 trillion rise.
Still, such a surge is highly uncertain and goes well beyond the most bullish Wall Street expectations of the second-biggest semiconductor giant. Indeed, the Street high forecast – set at $220 by KeyBanc on October 11 – would only see AMD’s valuation grow some $110 billion.
Nonetheless, even such a rise – which is relatively likely should the Instinct MI325X and considering Advanced Micro Devices’ track record – would lead to a 40% upside for investors as AMD stock price today stands at $153.65.
Why an AMD stock rally is far from guaranteed
Simultaneously, it is worth pointing out that, despite AMD being a likely candidate for a major rally and overall well positioned to appreciate in value given its importance rapidly in numerous industries, there are multiple reasons to be cautious.
Along with the broader concerns the current AI boom is, in fact, an AI bubble – a scenario that could prove catastrophic for the entire technology sector and could collapse the entire market – there are also more AMD-specific causes for caution.
Despite the hopes for the Instinct MI325X, it would not only have to be competitive against Blackwell to succeed but also have to bear an enticing price tag.
Though AMD has historically been known as the cheaper option, Blackwell itself surprised many with its approximately $30,000 price tag, as some early estimates placed the cost closer to $70,000.
Morgan Stanley (NYSE: MS) has also found cause for concern in AMD’s AI chip supply chain strategy, particularly in the fact that Advanced Micro Devices had trimmed its CoWoS wafer bookings at Taiwan Semiconductor Manufacturing Company (NYSE: TSM), suggesting a conservative approach to possible demand fluctuations.
The matter turned particularly bearish for AMD as Nvidia was reportedly quick to absorb the newly available capacity at the foundry, thus potentially solidifying its already dominant position in the market.
Finally, investors appear to concur with Morgan Stanely, at least to an extent as AMD shares began sliding shortly after the bookings were reduced and are 1.76% down in the last full week of trading.
