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Why is Advanced Micro Devices stock a strong buy?

Why is Advanced Micro Devices stock a strong buy
Ivan Zhelev

The artificial intelligence (AI) market has witnessed significant expansion this year, and research suggests it will experience a compounding annual growth rate (CAGR) of 37% in the coming years.

So far in 2023  $2.8 trillion has been poured into leading AI companies’ market capitalizations, and as we head towards 2024 Advanced Micro Devices (NASDAQ: AMD) will be one of the companies looking to feature on the list next year, with leading analysts on Wall Street labelling it a ‘Strong Buy.’

Why invest in Advanced Micro Devices

Nvidia (NASDAQ: NVDA) has been taking the spotlight but isn’t the only player in the AI industry. Advanced Micro Devices also plays a vital role in the market, and its price-to-value ratio is 91.9% better than Nvidia.  

Advanced Micro Devices stock has surged by 88% since the beginning of the year, signaling the company’s strong recovery from the economic downturn of the previous year. This impressive market performance, however, masks some of the underlying challenges the company has been facing in its core business areas.

AMD year-to-date price chart. Source: Finbold

AMD faced some issues, with a significant drop in client revenue primarily driving the decline in its revenue. The company underwent a 64% year-over-year (YoY) decrease from $2.1 billion in Q1 2022 to $739 million in Q1 2023. This was directly linked to the sharp reduction in PC sales during this period.

Nevertheless, the third quarter of this year indicates a turnaround, with the client segment returning to profitability and achieving a 42% YoY revenue growth. Total revenue exceeded analysts’ expectations by $110 million, signaling a positive shift.

The future is bright 

The chipmaker is set to launch its most powerful graphics processing unit (GPU), the MI300X, in 2024, this new AI chip is positioned to compete with market leader Nvidia, and its introduction could lead to a substantial increase in revenue in the coming months. 

Microsoft’s Azure will be the first cloud platform to utilize the MI300X, opening up possibilities for new services and generative AI capabilities.

This strategic partnership aligns with AMD’s focus on enhancing its AI technology, undertaking promising start-up acquisitions like Nod.ai and Mipsology. 

These acquisitions are expected to enhance the company’s AI software and provide developers with the necessary tools to maximize the potential of its GPUs like MI300X. 

Analysts predictions 

A synthesis of projections from 30 analysts on TipRanks over the previous quarter indicates a 12-month average price target of $127.13 for Advanced Micro Devices. 

This suggests a potential upside of 3.7% from its current price, leading to an overarching strong buy recommendation. Based on the last three months rating, AMD has received 23 ‘Buy’ ratings, 7 ‘Hold’ ratings, and notably, 0 ‘Sell’ ratings.

AMD Wall Street analyst 12-month prediction. Source: TipRanks

The highest price target for the stock is $150, meanwhile the lowest price target is $98, below the current price of $122.5.The company is heading in the right direction within a promising industry, and reaching the predicted price of $150 is feasible. And despite potential price fluctuations in the upcoming years, it’s positioned as a sound investment if it maintains a YoY revenue increase of 4.22% and a YoY net income growth.

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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