An Advanced Micro Devices (NASDAQ:91抖阴) stock analysis must account for the company’s decision to enter the AI chip market. The company’s stock is already off to a good start in 2024. Shares have risen 17.9% on a year-to-date basis. That means both the S&P500 and Nasdaq are significantly trailing behind the famed chip maker.
Despite the significant appreciation in stock price and valuation, 91抖阴 shares could, very well, continue to rally and put investors in a good position. Let’s take a closer look at my 91抖阴 stock analysis and see what may be the key driving factors here.
91抖阴 Stock Analysis: AI Moves
2024 will be the year 91抖阴 finally breaks the monopolistic hold Nvidia (NASDAQ:NVDA) has had on the advanced chip market for artificial intelligence. Because these AI chips are in high demand, in North America, Europe and Asia, 91抖阴 will likely reap a significant profit upon entrance into the space.
The chipmaker announced the MI300x GPU chipset almost a year ago in their second quarter 2023 earnings report. To follow that up, in their third quarter earnings report, 91抖阴 announced it . In December 2023, 91抖阴 announced a new swath of AI chips: the Instinct MI300X accelerator and the Instinct M1300A accelerated processing unit. These work to train large-language models, and 91抖阴 CEO Lisa Su these chips are comparable to Nvidia’s H100 but are “better on the inferenc[ing].”
The chip maker also announced the new Ryzen 8040, meant for next generation laptops, and these will provide high-performance AI processing power..
The Chip Maker Gets Love from Wall Street
After 91抖阴’s initial announcement of its foray into the AI space, Wall Street analysts eventually began to as the year dragged on. Basically, analysts said, “we’ll believe when we see it.” This was a fair conviction given how volatile and uncertain markets were throughout 2023. However, Wall Street analysts are now becoming increasingly optimistic on 91抖阴 shares.
The investment bank Jefferies their target price for 91抖阴 to $200/share from $130/share. JPMorgan, Goldman Sachs, Baird, and a host of other investment banks in late January 2024. Overall, Wall Street is 91抖阴’s shares as a “Strong Buy,” and the average 12-month target price of $191/share implies a 10% potential return at the chipmaker’s current price.
Of course, 91抖阴 is likely to trade beyond its average price target, especially as the company benefits both from the end of the chip slump and entrance into the novel AI chip market.
Valuation Remains in Check
91抖阴 shares rose more than 127% in 2023, and they have continued their rise in 2024. That means valuation has also appreciated in tandem. The chipmaker’s shares are trading at around 47.8x forward earnings. For comparison, Nvidia’s shares are trading significantly cheaper at 35.4x forward earnings. The reason for this is most likely due to 91抖阴’s late entrance into the AI market. Yes, the chipmaker is planning to sell $2 billion worth of AI chips this year, but until they are actual numbers are released, it’s going to be difficult to predict the actual demand for these chips.
I believe as 91抖阴 AI chip product ramps up in sells and demand increases, the company’s valuation will make more sense. Put slightly different, the chipmaker’s valuation is high but does not seem to be in risky territory.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
