Semiconductor chip companies are captivating investors’ attention, fueled by the explosive growth of artificial intelligence as the new cornerstone of technology.
AI is revolutionizing a wide range of fields, from the automotive industry to cloud computing to natural language processing to machine learning to the interfaces between humans and computers. And AI is a field that is hungry for processor chips; as it continues to expand, it will form an ever-stronger base for the companies that can produce those chips.
Against this backdrop, Wolfe Research’s Chris Caso, a 5-star analyst rated in the top 1% of the Street’s stock pros, has been pounding the table on chip giants Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), predicting double-digit upside for both.
But it’s not only Caso showing faith in these names; according to the TipRanks database, both stocks hold a ‘Strong Buy’ consensus rating from the rest of the Street. Let’s see what makes them so.
Nvidia
We’ll start with Nvidia, a chip company that has been taking the AI world – and investors – by storm in recent months. The company has seen its stock skyrocket – by over 200% in the last 12 months. The gains have come on the back of Nvidia’s leading position as a supplier of semiconductor chips for AI applications and data center use, and have pushed the company’s market share up to $2.34 trillion. This makes Nvidia the third largest publicly traded firm on Wall Street, and the world’s most valuable chip company by a wide margin.
The company has reached these heights through merit. Nvidia was the early developer of the GPU chips that have proven so successful in the AI and data center worlds. While originally designed to meet the needs of gamers, who were demanding more and better graphics, the chips quickly found acceptance from professional graphic designers – and their high-speed processing capacities were snapped up by data center operators and, more recently, AI developers.
On the AI side, Nvidia stayed at the forefront as generative AI technology hit the scene. The company is a major chip supplier for OpenAI, the creator of ChatGPT, and is also collaborating with Google and Amazon on AI-capable semiconductors to support Google’s open language models and Amazon’s cloud computing service. And in recent days, Nvidia entered into an agreement with Northrop Grumman to make its AI and generative AI capabilities and systems – the software, platforms, and frameworks – available to the aerospace/defense contractor for research and development purposes.
Nvidia is continuing to develop new products, designed to maintain its lead in the chip world. Earlier this year, it released the new Blackwell platform, billed as the next generation in high-end computing, with an architecture that can support and enable multiple accelerated computing breakthroughs, in generative AI, data processing, and even quantum computing. Nvidia is looking to these new computing technologies to define and expand the opportunities in the semiconductor industry. The company also has new versions of its H100 chipsets coming available, as well as the more advanced B100 series planned for later this year, which will integrate the Blackwell GPUs.
We’ll see Nvidia’s financial results for fiscal 1Q25 tomorrow afternoon, and the Street is expecting that the company will report more than $24.5 billion at the top line. That would represent a bump of nearly 11% from the $22.1 billion reported in fiscal 4Q24. The fourth quarter revenues were up 265% year-over-year, and beat the estimates by $1.55 billion. The gains were driven by Nvidia’s data center segment, which accounted for $18.4 billion of the Q4 revenues. In all, the data center segment was up 409% from the previous year’s quarter.
Turning to Wolfe analyst Caso, we find this top-rated tech expert bullish on Nvidia. Despite the company’s high share price, Caso believes that it remains in a strong position to bring value for investors, based on the quality of its business.
“NVDA remains one of our favorite names in semis. We expect NVDA’s strong competitive position in AI will drive strong demand and pricing leverage for its datacenter GPUs over the next several years. Nearer-term, we are not expecting an exceptional beat when NVDA reports F1Q25 results on May 22, but we do anticipate a much stronger 2H24 as additional CoWoS capacity becomes available, allowing NVDA to begin to catch up on unfulfilled H100 demand and the B100 begins shipping in 4Q,” Caso opined.
For Caso, this means an Outperform (i.e. Buy) rating on the stock, with a $1,200 price target that points toward a 27% upside potential in the next 12 months. (To watch Caso’s track record, click here)
Overall, it’s clear that the bullish take is not an outlier here. Nvidia’s shares earned their Strong Buy consensus rating from 42 recent analyst reviews, that include 40 Buys to just 2 Holds. The stock is selling for $953.86 and its $1,057.76 average target price indicates room for a potential gain of ~11% going forward. (See NVDA stock forecast)
Advanced Micro Devices (AMD)
Next up is AMD, another of the chip industry’s top-ten firms. Measuring by market cap, AMD’s $265.8 billion valuation ranks it sixth among the world’s chip makers, and third among its American peers; by revenues, the company is ranked in ninth place globally based on $22.8 billion brought in through 1Q24.
Like Nvidia, AMD’s processor chipsets are in high demand from both generative AI developers and data center service providers. AMD’s newer products, such as the MI300 accelerators, are purpose-built to meet the demanding specifications required by the high-performance computing systems needed to support generative AI technology, and are scalable to meet a wide range of needs. The company has seen strong sales of the MI300 chips, the latest versions of which were launched at the end of last year. The chips have already found acceptance from big names in the computer world, such as Dell, Lenovo, and Supermicro.
Gains in the processor chip segment have helped to offset problems that customers reported last year with AMD’s memory chips. Memory leak issues from various AMD GPUs were reported in online user groups, and the company has moved to address the problems.
Overall, AMD has been successful in that, and in growing the sales of its processors. In its last set of financial results, for 1Q24, the company reported $5.5 billion at the top line, a total that was up 2.2% from the prior year period and was $20 million better than had been expected. The non-GAAP EPS for the quarter, of 62 cents per share, beat the forecast by one cent, and was based on $1 billion in net income.
The company’s Data Center and Client business segments were the main drivers of the Q1 results, as the strong sales of the new MI300 accelerators pushed both segments to more than 80% year-over-year growth. AMD management has noted that continuing demand for AI-capable chipsets is providing solid backing for the semiconductor industry as a whole.
Turning again to Wolfe’s Caso, we find the analyst explaining why AMD has taken a top slot on his firm’s Alpha list.
“We think AMD’s memory issues were largely transitory and now appear to be resolved. We think there is plausibility to close to $2bn MI300 revenue run rate exiting the year and as that becomes clearer, we believe it will be an incremental catalyst for the stock. We model CY24/CY25 server graphics revenue of ~$4bn/$7.3bn, and remain constructive on upward AI revenue guidance revisions through 2H24 as demand visibility improves,” Caso noted.
To this end, the analyst puts an Outperform (i.e. Buy) rating on AMD shares, along with a $210 price target that suggests the shares will appreciate by 27.5% on the one-year horizon.
All in all, AMD has picked up 35 recent analyst reviews, with a breakdown of 29 Buys to 6 Holds to back up the Strong Buy consensus rating. Shares here are trading for $164.66, and the $192.56 average price target implies a 12-month gain of nearly 17%. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
