Advanced Micro Devices or AMD (AMD) shares have come under pressure amid talk of further competition within the artificial intelligence (AI) space. But while analysts often mull the impact of the latest technological developments, the all-important earnings results will clearly show the company’s progress, which has been positive in recent times. I’m bullish, noting the company’s track record for beating or hitting targets and its valuations and realizing it doesn’t need to beat Nvidia in AI to be an attractive investment prospect.
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What AMD Does Well
I’m bullish on AMD due to its strong position in the computer processing unit (CPU) market and growing presence in the graphics processing unit (GPU) space. The Santa Clara-based company excels in producing high-performance processors for both consumer and data center applications, with its Ryzen and EPYC lines offering competitive alternatives to Intel’s (INTC) offerings. The company’s focus on innovation has led to several industry firsts, including the first 64-bit and dual-core processors, and this is an excellent track record for any company.
In the CPU space, AMD has been battling Intel for some time. While Intel remains dominant, AMD’s progress has been admirable, and its potential is huge. In fact, AMD overtook Intel regarding market cap around two years ago, reflecting the company’s very promising trajectory.
Meanwhile, despite Nvidia’s dominance in AI chips, AMD is positioning itself as a strong second option in this rapidly growing market. With predictions of global AI accelerator spending reaching $400 billion by 2027, AMD has significant growth potential if it can capture even a fraction of this market. This is why it doesn’t need to beat Nvidia, which has a market cap 17x higher but simply secures a share of this surging market.
Moreover, the company’s open-source development software, ROCm, offers flexibility that some projects may prefer over Nvidia’s proprietary CUDA platform. While I’m not suggesting AMD’s software is better, it may prove more effective for some tasks, and recent acquisitions will likely improve end-to-end AI capabilities.
AMD’s Earnings Forecast Is Formidable
AMD is a quality company, and that’s undoubtedly partly thanks to Lisa Su, who has been a hands-on CEO since 2014. And this quality is reflected in AMD’s earnings forecast, which is packed full of potential over the next five years.
For Fiscal year 2024 — reporting on February 4 — analysts expect earnings per share (EPS) of $3.32, representing a 25.4% year-over-year increase. This growth is projected to accelerate in 2025, with EPS estimated at $4.99, a 50.1% jump. Meanwhile, revenue estimates follow a similar upward trajectory, with $25.7 billion expected for 2024 and $32.2 billion for 2025, indicating 13.1% and 25.7% year-over-year growth, respectively. Moreover, AMD has consistently beaten or matched earnings expectations in the last nine quarters.
Looking further ahead, AMD’s EPS is forecast to reach $11.59 by 2028, while revenue could hit $56.5 billion, representing a vast increase from today. AMD’s expanding presence in the data center and AI markets will likely drive this long-term growth. The company expects to sell at least $4.5 billion of data-center GPUs in 2024, doubling its 2023 performance.
Could AMD be Cheaper than JPMorgan?
I’m also bullish because AMD’s valuation has become increasingly attractive. While the forward price-to-earnings (P/E) ratio of 36.6x does present some risk, notably around the execution of the growth strategy, this P/E falls to 10.5x based on 2028’s projected earnings. In short, while the forward P/E for this year is 43.8% above the sector average, the medium-term earnings growth rate is 184% above the sector average.
I’m particularly encouraged by the company’s forward price-to-earnings-to-growth (PEG) ratio of 0.82, as it’s significantly lower than the sector median of 1.87. The PEG ratio compares a stock’s P/E ratio to its expected earnings growth rate, and a value below one is considered initially attractive, but this is arguably no longer the case. Many companies with long-term growth tailwinds trade with PEG ratios that are far higher — as the sector average suggests.
Moreover, while some analysts have suggested that these AI-related stocks have unsustainable valuations, AMD’s forward earnings ratio drops below JPMorgan’s (JPM) in 2028.
Is AMD Stock a Buy According to Analysts?
On TipRanks, AMD is a Moderate Buy based on 21 Buys, 10 Holds, and one Sell rating assigned by analysts in the past three months. The average AMD stock price target is $172.24, implying a 40.86% upside potential.
The Bottom Line on AMD Stock
I’m bullish on AMD because of its focus on innovation, impressive earnings growth forecasts, and expanding presence in AI and data centers. The company’s ability to consistently beat expectations, coupled with its attractive long-term valuations, is encouraging and hopefully reflects its investment potential. While it doesn’t need to outpace Nvidia, AMD’s strategy to secure a share of the surging AI market will likely be its growth engine.
