The growing adoption of artificial intelligence (AI) has created a boon for a number of companies in the semiconductor space, and Advanced Micro Devices(NASDAQ: AMD) has been among the beneficiaries of that trend. The company's processors have seen strong demand driven by these secular tailwinds.
Despite spectacular gains of 78% over the past year, one Wall Street analyst believes AMD has further to run.
Profiting from the AI boom
Evercore ISI analyst Mark Lipacis initiated coverage on AMD stock with an outperform (buy) rating while assigning a $200 price target on the stock. That represents potential upside for investors of 25% compared to the stock's closing price on Monday. The analyst suggested AMD will be the beneficiary of "the tectonic shift in computing to parallel processing era," as it takes a growing market share of the central processing units (CPUs) used in data centers.
The analyst goes on to say that AMD has established itself as a suitable alternative to Nvidia's AI-centric graphics processing units (GPUs), with AMD recently unveiling its Mi300 series of AI accelerators, platforms, and data center accelerated processing units (APUs).
The analyst may be on to something. The rapid demand shift for generative AI has created a shortage of high-end processors needed to run AI -- and AMD is well positioned to exploit that scarcity. Furthermore, while Intel has long been one of the leaders in the data center CPU market, AMD has been gaining share at the expense of its longtime rival. To add insult to injury, AMD also increased its share of desktop CPUs for the first time in more than two years.
To be clear, the results of AMD's moves are only beginning to show in its financial results, as revenue grew 10% year over year in the fourth quarter. However, if the company can capitalize on the surge in demand for AI-centric processors, the future could be bright indeed.
The stock isn't exactly cheap at 8 times forward sales, but if AMD continues to gain market share, that might end up being a bargain.
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Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
