The chip space has endured a lot of pressure this year, with even frontrunners like AMD (NASDAQ:AMD) taking big hits to the chin. Despite the cyclical nature of the chip space, it’s noteworthy that Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) sees value in the chip scene with its purchase of Taiwan Semiconductor (NYSE:TSM) shares. Though 2023 could be another wild ride for the semiconductor stocks, Lisa Su‘s AMD is not a company to bet against, as it continues to gain ground in the CPU space while continuing to innovate on the GPU side.
With so much recession risk already factored into shares and a more than 50% discount from peak levels, I view AMD as one of the better blue chips in the chip space to consider today. The company has caught up to Intel on the CPU side and could be able to extend its lead.
Further, I don’t think it’s out of the ordinary to think AMD could begin to nip away at Nvidia’s (NASDAQ:NVDA) dominant share of the GPU market over the next 10 years.
Under Su’s capable leadership, AMD strikes me as a share-taker that won’t be weighed down by macro headwinds for too long a duration. I am bullish on the stock. Though, another year of turbulence is likely in the cards.
AMD: Still Plenty of Room to Take Market Share
The chip space is hard to compete in as an underdog. Somehow, AMD was able to do it, catching up to and eventually surpassing former CPU top dog Intel (NASDAQ:INTC). Undoubtedly, AMD still has room for growth now that it’s topped its long-time rival. This ability to take share could help AMD continue gaining ground in a year that could see a mild recession.
The past year was full of headwinds for chip stocks. The PC market has been incredibly sluggish. AMD’s third-quarter revenue came in at $5.6 billion, well shy of the firm’s original guide of $6.7 billion. I thought AMD should have gotten a free pass, given the company’s superior competitive positioning versus rivals like Intel and the likelihood it’ll pick up where it left off after the slowdown.
The Data Center segment was a bright spot for the latest underwhelming quarter. The segment clocked in 45% growth year-over-year. Undoubtedly, EPYC server processors continued to be hot sellers. Recently, AMD unveiled its next-generation server CPUs (Genoa) that could help it continue posting impressive growth numbers, likely at the expense of rivals.
AMD could improve its relative footing versus Nvidia. While investors shouldn’t look for the firm to catch up to Nvidia on the GPU side, there’s still plenty of market share to take as AMD flexes its muscles with cutting-edge new innovations at competitive prices. Even the tiniest bite out of Nvidia’s share could mean big things for AMD stock.
Ultimately, sources note that AMD’s Radeon GPUs offer consumers a better bang for their buck at pretty much every price point.
AMD: CPU Momentum is on Its Side
AMD may have been known for its budget-friendly CPU and GPU offerings. With huge performance leaps in recent launches, AMD will find itself with the means to pad its margins via price increases. AMD isn’t that secondary option anymore. For many, AMD is a top choice in CPUs.
Now, Intel’s aggressive spending spree could limit further gains. However, there’s a lot of execution risk on Intel’s side. When it comes to chips, it’s oh-so-hard to catch up. Past-year missteps by Intel are not encouraging. Still, Intel’s confident it could turn the tide, and any gains by Intel could be a loss for AMD.
In any case, the momentum remains on AMD’s side, and it’s likely to stay this way through a recession year.
Is AMD Stock a Buy, According to Analysts?
Turning to Wall Street, AMD stock comes in as a Moderate Buy. Out of 27 analyst ratings, there are 20 Buys and seven Holds.
The average AMD price target is $84.30, implying upside potential of 20%. Analyst price targets range from a low of $60.00 per share to a high of $125.00 per share.
Takeaway: AMD’s Lofty Valuation is Worth It
AMD stock has a lot going for it as it continues to leave its top rival, Intel, behind. Even after a more than 50% haircut, the stock is pricy at 44.1 times trailing earnings and 5.0 times sales.
AMD shares are pricy for a reason, though. Between Intel at a deep-value discount and AMD at a lofty, albeit pretty fair valuation, AMD looks like the far better bet, in my opinion. Most Wall Street analysts agree.
