The semiconductor industry is considered one of the world’s most competitive industries. Many great companies aspire to innovate and bring the next processors that will outperform their competitors, like AMD’s (AMD) newest Ryzen AI PRO 300 Series, which delivers three times the AI performance of its predecessor and features a powerful Neural Processing Unit (NPU). On the other hand, those who fail to progress or exhibit slight hesitation pay the price and are left to try and collect the broken glass from the floor. Just look at Intel (INTC) as a prime example.
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Recently, AMD has developed its appetite and shows a greater hunger for success. After many years of enjoying the appetizer bar, it now wishes to taste some of the main dishes offered and take a much larger portion of the semiconductor market. Catching Nvidia (NVDA) is no longer a pipe dream but an actual goal. With its innovative AI processors to show for and strategic market moves, AMD is poised to challenge Nvidia’s dominance.
If you wish to read more about AMD’s prospects and how it compares to Intel, you can check out what Oliver Rodzianko has written about the stock here.
Now, let’s briefly examine AMD’s market position, financials, and future potential.
- Strong Market Position and Growth: AMD has established itself as a leader in the semiconductor industry, demonstrating resilience and stability. The company’s focus on high-performance computing, AI chip development, and gaming has prompted significant growth. In Q3 2024, AMD’s Data Center segment alone accounted for 52% of total revenue, with a 122% year-over-year increase. However, its gaming segment declined 69% year-over-year, with $469 million in revenue, due to lower demand or changes in inventory levels from major gaming console manufacturers. After all, it’s a cyclical industry, and quarters such as the last one are bound to happen every few years.
- Impressive Financial Performance: When we move on to the financials, AMD’s metrics highlight its strong performance. Even with the decline in the gaming segment, the company has delivered year-over-year EBITDA growth of 47.05%, outpacing competitors like Intel. In addition, AMD’s management forecasts a 22% year-over-year revenue growth for Q4 2024, reaching $7.5 billion. This consistent financial strength showcases AMD’s operational efficiency.
- Valuation and Future Potential: Despite its high growth, AMD’s valuation remains relatively cheap. By December 2026, AMD’s total revenue is projected to be around $40 billion. With an EV-to-sales ratio of approximately 8.5, the company’s enterprise value could reach $340 billion, suggesting a 65% total price return over the next two years.
How High Is AMD Stock Expected to Go?
When we look at what Wall Street analysts have to say about AMD stock, we find a Moderate Buy based on 22 buys and 8 hold ratings. The average target price is $183.96, suggesting a 45.20% upside.
Takeaway
AMD is not settling for leftovers anymore and has much grander aspirations, even topping (one day) the semiconductor industry leader Nvidia. The company is making all the right moves to get there, but we’re talking about a long journey. Even if AMD doesn’t catch Nvidia, it will still take forward steps, which can only bode well for investors looking for growth companies.
