Semiconductor stocks have been gripping Wall Street since early 2023. Advances in the chip market have allowed dozens of other industries to take their technologies to the next level. Sectors like artificial intelligence (AI), cloud computing, virtual/augmented reality, consumer technology, self-driving cars and more have all benefited from new chip designs from companies like Nvidia (NASDAQ: NVDA) And Advanced micro devices (NASDAQ: AMD)This has made semiconductor companies one of the best options for technology investments.
Shares of Nvidia and AMD have risen 782% and 132% since early 2023, as an AI boom began. Nvidia was able to gain an industry lead and immediately begin shipping its chips to AI developers worldwide. AMD, meanwhile, needed more time to produce competing hardware.
AMD, however, has made promising strides in AI in 2024 and could be on track to make significant gains in the coming years. It’s a semiconductor stock that I predict will overtake Nvidia’s $3 trillion market cap within 10 years.
AMD scales to better meet AI demand
AMD shares have risen 12% since reporting its second-quarter 2024 results on July 30, which has investors excited about a win in AI, proving the market has become the biggest growth engine.
Total revenue rose 7% year-over-year to just under $6 billion, fueled by a 115% spike in the AI-driven data center segment and a 49% increase in the client division. The quarter benefited from increases in AI graphics processing unit (GPU) and central processing unit (CPU) sales.
AMD has gone all-in on AI over the past year, expanding into multiple areas of the industry that are likely to pay dividends over the next decade. The company unveiled its most powerful GPUs yet and announced plans to acquire server maker ZT Systems for $5 billion. Both moves will make the company more competitive with Nvidia, with the acquisition allowing AMD to more quickly roll out its AI GPUs and at the scale needed by cloud providers.
AMD’s chips have already attracted some of the biggest players in AI, with the company signing a contract MicrosoftThe Azures, Meta platformsAnd Oracle as customers. These cloud giants are fiercely competing with each other and require powerful hardware to remain competitive. As a result, demand for AI chips is only likely to continue to rise for the foreseeable future, with AMD well-positioned to enjoy large profits.
AI Capabilities Beyond GPUs
In addition to GPUs, AMD is also sowing seeds in the AI market to diversify its positions and capitalize on growth catalysts in the distant future.
The company has a huge opportunity in AI central processing units. CPUs have been AMD’s specialty for years, with CPU market share up from 18% in 2017 to 34% this year as it has consistently gained market share from IntelData from Verified Market Reports shows that the AI CPU sector was worth $15 billion last year and is expected to reach $410 billion by the end of the decade, growing at a compound annual growth rate (CAGR) of 29%.
CPU expertise also gives AMD a potentially lucrative role in the rapidly growing AI-enabled PC market. As demand for AI services has grown, so has the need for more powerful hardware. As a result, AI-enabled PCs are expected to account for approximately 40% of all global PC shipments by 2025, with the market developing at a CAGR of 44% through 2028.
Nvidia’s market cap was $359 billion at the start of 2023. Yet it hit $3 trillion in June 2024, just 18 months later, after a rally that sent the stock up 738%. The company’s success has been fueled largely by a massive spike in sales of its AI GPUs. While Nvidia has shown what’s possible with success in one facet of AI, AMD has laid foundations in multiple areas of the industry that could deliver significant stock gains.
AMD’s market cap currently stands at around $251 billion. The company’s stock would need to rise 1,200% to reach $3 trillion in the next 10 years. It’s a lofty goal, but not unachievable. Considering AMD’s stock has risen over 3,000% since 2014, it might not be that far off.
The chart above predicts that AMD will post earnings of just over $7 per share by fiscal 2026. Multiply this figure by the company’s forward price-to-earnings ratio of 46, which results in a share price of $336. This predicts potential share growth of nearly 115% by 2026.
Still, Nvidia’s spectacular rise in AI and AMD’s performance over the past 10 years suggest that growth could be conservative. As a result, AMD could be on a growth path to reach that coveted $3 trillion market cap in the next decade. The company is expanding rapidly, and you don’t want to miss this.
Should You Invest $1,000 in Advanced Micro Devices Now?
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Randi Zuckerberg, former chief marketer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia and Oracle. The Motley Fool recommends Intel and recommends the following options: long Jan 2026 $395 calls on Microsoft, short Jan 2026 $405 calls on Microsoft and short Nov 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Prediction: 1 Semiconductor Stock To Overtake Nvidia Within 10 Years was originally published by The Motley Fool
