Advanced Micro Devices (NASDAQ:AMD) had a somewhat mixed performance over the past year. The AI chipmaker has been rolling toward record revenues, yet the market response in 2024 was less favorable. After spiking roughly 50% during the first few months of the year, AMD shares declined in the following months, ultimately closing the year down 18%.
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Investors were spooked by AMD’s disappointing Q4 guidance and weak gaming segment performance. Additionally, the industry-dominating Nvidia’s remarkable success has cast a wide shadow over AMD’s prospects.
While 2024 may have been underwhelming, investor Kenio Fontes is optimistic that AMD will fair quite well in the year to come.
“AMD’s strong fundamentals and market share gains highlight its growth potential in data centers, AI, and CPUs despite Nvidia’s dominance,” the investor argues.
Fontes is upbeat about the continued demand for AI chips worldwide, citing a CAGR of roughly 28% through 2030. The investor points out that AMD has demonstrated its ability to enjoy the spoils of this intense demand, as evidenced by its $3.5 billion in revenues from its data center segment in Q3 2024 (an increase of 122% year-over-year).
The fidelity of AMD’s products provides the investor with plenty of confidence in the company’s prospects going forward. This includes partnerships with major players such as Google, Meta, Dell, and Microsoft, who are all utilizing AMD chips.
“Knowing that AMD chips have a demand from Microsoft for one of the most important AI tools – ChatGPT – is quite a recognition of quality,” adds the investor.
In Fontes’ view, the combination of AMD’s relatively cheap valuation of 27.7x forward earnings and its significant potential for future growth makes the stock highly attractive. This would be the case even if it continues playing second fiddle to Nvidia.
“AMD’s thesis is not necessarily a ‘wanna-be’ Nvidia, since if it delivers more reasonable growth in revenue – which could occur even with Nvidia’s dominance in the GPU market – it would be possible to achieve interesting returns with AMD stock,” concludes Fontes, who therefore rates AMD stock a Buy. (To watch Fontes’ track record, click here)
The analysts on Wall Street largely agree with Fontes. The heavily-covered stock has 23 Buy recommendations and 8 Holds, resulting in a consensus Moderate Buy rating. Its 12-month average price target of $184.52 suggests potential gains of ~53% over the coming year. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
