Chip stocks have been enjoying a lot of attention since the generative artificial intelligence (AI) wave hit the tech world following the launch of OpenAI’s ChatGPT. Shares of Advanced Micro Devices (NASDAQ:AMD) have rallied over 75% year-to-date, as investors are upbeat about AI-led demand for chips. While some analysts are skeptical about AMD due to the dominance of Nvidia (NASDAQ:NVDA) in the AI space, others are optimistic about the company’s potential and see continued upside in the stock.
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AMD Set to Capture the AI-Induced Demand
Over the years, AMD has successfully grabbed CPU (central processing unit) market share from Intel (NASDAQ:INTC). However, when it comes to the GPU (graphics processing unit) market, Nvidia is the clear leader. Based on AI-led demand, Nvidia guided for around $11 billion in revenue for the fiscal second quarter, which crushed Wall Street’s expectations. The blowout guidance triggered a rally in NVDA, with the stock joining the $1 trillion market cap club.
Last month, AMD’s CEO Lisa Su provided details about the company’s forthcoming advanced GPU chip (MI300X) for AI applications. The company said that its MI300X chip and CDNA architecture were designed for large language models and other advanced AI applications. AMD expects mass production of MI300X to begin in the fourth quarter.
Following AMD’s new AI chip announcement, Bernstein analyst Stacy Rasgon stated that while the AI opportunity for companies is in the early stages, AMD’s efforts still seem somewhat late, given that its rival “already has the roadmap, ecosystem, and track record across compute, hardware, software, networking, and application expertise and who is bending the market to their will.”
Rasgon thinks that even if the AI data center’s total addressable market worth $150 billion materializes by 2027, it might still be more bullish for Nvidia than others. Rasgon reiterated a Hold rating on AMD with a price target of $80.
Meanwhile, TD Cowen analyst Matthew Ramsey opined that AMD’s AI event “articulated a clear strategy” for the company to lead and win further market share in the server CPU market. He also noted that AMD highlighted how its diverse portfolio of CPU, GPU, Field Programmable Gate Arrays (FPGA), and networking offerings can be customized for many workloads, including AI inference and training.
On Wednesday, Northland Securities analyst Gus Richard upgraded AMD stock to Buy from Hold and boosted the price target to $150 from $81. The analyst acknowledges Nvidia’s dominance in AI, but thinks that AMD’s upcoming MI300X and El Capitan supercomputer could enhance its GPU revenue in the second half of 2023.
Further, Richard feels that AMD’s open-source software approach “likely reduces NVDA software moat.” He also highlighted that AMD has intellectual property (IP) for AI beyond GPUs.
Is AMD Stock a Buy, Sell, or Hold?
Wall Street’s Strong Buy consensus rating on AMD stock is based on 22 Buys and seven Holds. The average price target of $136.69 implies 20% upside.
Conclusion
Most Wall Street analysts are bullish about AMD’s growth prospects in data centers, the embedded segment, and generative AI applications. Analysts’ average price target indicates further upside in AMD stock.
