Those who stated Advanced Micro Devices (NASDAQ:AMD) had moved up “too far, too fast” are having to walk back their AMD stock analysis, as it continues to surge higher.
This latest run-up in price for shares in the chip designer has to do primarily with news regarding a key competitor.
On the surface that may sound strange, or even irrational, but make no mistake. The market’s reaction makes sense. Although Advanced Micro Devices is only just starting to tap into the fast growing AI chips market, this positive news for its competitor is positive news for its own prospects.
That’s not to say that AMD will keep on climbing without experiencing some turbulence or volatility along the way. It is, however, a sign that “selling into strength” or “waiting for lower prices” isn’t necessarily the best course of action.
With this, read on, as I explain why.
Why a Rival’s Earnings Beat Bodes Well for AMD Stock
If you’ve been following this area of the market, you know full well what I was hinting at above: Nvidia’s (NASDAQ:NVDA) latest quarterly earnings release. Consensus was that Nvidia was going to tank post-earnings (either because of profit taking or on disappointment). However, the earnings release instead resulted in a bullish reaction from investors. Nvidia not only reported a very high level of year-over-year revenue (265%) and earnings (409%) growth.
These results came in handily above sell-side expectations. A positive surprise, to say the least, it is of little surprise that this event sparked a sudden spike for NVDA stock. Trading for around $675 per share just before earnings, NVDA is nearing $800 per share as of this writing.
I know what you are thinking. This is all fine and dandy for NVDA investors, but why has AMD also surged on this news, and what does it really mean for the latest AMD stock analysis? Two things.
First, these latest results put to rest any motion of AI chip demand peaking. Second, even as Nvidia is leveling up on its initial success in this space, AMD also has the opportunity to capitalize on this mega-trend in a big way.
A ‘Second Year of AI?’ I Wouldn’t Rule it Out
Based on the aforementioned earnings release, Nvidia appears on track to experience a “second year of AI,” or another year where the rapid increase in demand for generative AI-enabled chips results in strong fiscal performance, as well as strong share price performance.
Admittedly, AMD stock also had its own “year of AI” in 2023, albeit more on speculation about its AI-related potential, rather than on the immediate impact of this trend on the company’s bottom line. To some, that may signal that much of the potential growth for the underlying company has long-since been priced-in. Hence, no “second year of AI” for shares in 2024.
I wouldn’t rule it out. Mostly, because there’s more to factor into AMD stock analysis as it pertains to AI besides sales of the company’s key product for the AI data center market: its MI300 line of AI processors. In this area of the space, AMD, while expected to generate $3.5 billion in revenue from the product this year, is playing catchup with Nvidia.
However, as I argued recently, AMD could gain considerable ground in emerging areas of the AI chips space. For instance, with AI-compatible chips for use in PCs and mobile devices.
AMD Stock Analysis: Too Early to Exit, but Not too Late to Buy
While earlier it may have sounded like I was downplaying the revenue potential of the MI300, keep in mind that the figure referenced above is the company’s latest forecast. As one analyst (KeyBanc’s John Vinh) argued last month, MI300 sales could top $8 billion this year.
If achieved, this alone could help justify a substantial move higher for AMD. Add in the potential for progress, or even the initial revenue figures, from AMD’s rollout of AI-enabled chips for the consumer end of the market, and it’s easy to see how a “second year of AI” is in reach for AMD.
Hence, here’s my latest AMD stock analysis. If you currently hold a position, consider it too early to make an exit. For those interested in gaining exposure to this solid AI contender, it’s not too late to buy.
AMD stock earns an A rating in Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place