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1 unstoppable stock that could join Nvidia, Microsoft, Apple, Amazon, Alphabet and Meta in the $1 trillion club

Artificial intelligence (AI) launched its first $1 trillion company last year Nvidia (NASDAQ: NVDA) Its stock price rose 239%, thanks to unprecedented demand for its AI data center chips. Nvidia continues to create value and is now worth $2.2 trillion, making it the third largest company in the world after Apple And Microsoft.

The trillion dollar club is incredibly exclusive Amazon, AlphabetAnd Metaplatforms being the only other members. However, it is possible that another company will join the ranks within the next decade.

Advanced micro devices (NASDAQ: AMD) is an emerging challenger to Nvidia in the AI ​​chip market. The company is valued at just $270 billion at the time of writing, so investors who buy the stock today could enjoy a 270% gain if it eventually joins the trillion-dollar club. Here’s why I think it will be.

AMD’s AI capabilities transcend the data center

Last year, AMD unveiled its MI300 series of data center chips designed to handle AI workloads. They come in two configurations: the MI300X is a pure GPU that competes with Nvidia’s H100, and the MI300A combines GPU and CPU hardware to form an accelerated processing unit (APU).

Since Nvidia can’t keep up with demand for its chips, the door is open for competitors like AMD to gain market share. In the fourth quarter of 2023 (ending December 31, 2023), AMD told investors it was working with tech giants like Microsoft, Oracleand Meta on MI300 GPU implementations for AI. Microsoft has already started private previews with customers for the MI300X on its Azure cloud computing platform, where developers can access advanced AI models like OpenAI’s GPT-4.

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AMD predicts that the MI300 series could generate sales of $3.5 billion by 2024. That forecast was revised higher from $2 billion just three months earlier, indicating how quickly demand is increasing. Nvidia generated $47.5 billion in data center revenue last fiscal year, mainly thanks to the H100, so there’s still plenty of room for AMD to grow.

However, AMD’s opportunities in AI extend beyond the data center. It already has a 90% market share in chips for AI personal computers, led by its Ryzen AI series, which includes CPUs, GPUs and neural processing units (NPUs). The company says millions of AI PCs have already shipped with these chips, from manufacturers such as DellLenovo, Asus and HP Inc.

Processing AI on-device results in a faster user experience because workloads do not have to travel to and from the data center. This allows computers to host advanced virtual assistants that can create text content, images and videos, potentially without any network connection. Ryzen AI chips drove AMD’s customer segment revenue up 62% year over year in the fourth quarter, and investors should look for faster growth in the upcoming first quarter of 2024.

AMD could be poised for significant revenue growth

The semiconductor industry is cyclical, meaning that growth from year to year is sometimes irregular. Consumers don’t upgrade expensive products like computers and smartphones annually, which occasionally leads to a decline in revenue growth for companies like AMD.

For example, AMD’s revenue rose 44% in 2022 to $23.6 billion, but ended up at $22.7 billion in 2023, which was down 4% year over year. High inflation and rising interest rates did not help, as they put additional pressure on consumer spending.

Commercial spend on the data center poses the same challenge. Tech giants like Microsoft don’t normally upgrade their hardware every year; However, Nvidia CEO Jensen Huang believes AI will change that in the short term. He says existing $1 trillion data center infrastructure will be upgraded within four years to meet the demand for accelerated computing and AI, which could create a significant growth cycle for his company and companies like AMD.

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Wall Street analysts predict $25.8 billion in revenue for AMD in 2024, which will represent 14% growth. They also forecast revenues of $32.5 billion by 2025, which would be an accelerated growth rate of 26%. But given that AMD recently raised its own forecast for MI300 sales by such a wide margin, coupled with rising sales of AI-enabled computer chips, it’s possible the company will blow Wall Street’s numbers out of the water blows.

After all, Nvidia routinely exceeds expectations in the data center, and AMD’s MI300 sales are only just starting to rise.

A digital representation of a circuit board with a chip in the center, on which AI is engraved.

Image source: Getty Images.

AMD’s (mathematical) path to a $1 trillion valuation

AMD is currently valued at $270 billion, and based on 2023 sales of $22.7 billion, its shares trade at a price-to-sales ratio (P/S) of 11.9. If that price-to-earnings ratio remains constant, AMD will need to generate $84 billion in annual revenue to justify a $1 trillion valuation.

The company could achieve this within a decade if revenue grows a relatively modest 14% annually between now and 2034. AMD appears likely to easily meet the threshold in the near term, based on The Street’s predictions for 2024 and 2025.

Furthermore, despite lumpy annual results, AMD’s revenue has grown at a compound annual rate of 15.6% over the past decade – and that’s without AI, which could be the company’s biggest opportunity yet.

Multiple expansion is also possible. If AMD’s revenue grows much faster than analysts expect, investors could be willing to pay a higher price-to-earnings ratio for the stock. For example, Nvidia stock trades at a price-to-earnings ratio of 35.8 — triple where AMD shares trade. That would accelerate the company’s path to a $1 trillion valuation.

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AMD is a very likely candidate to join Nvidia, Microsoft, Apple, Amazon, Alphabet and Meta in the trillion-dollar club, and investors who buy the stock today could stand to make a significant profit if it does.

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, HP, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

1 Unstoppable Stock That Could Join Nvidia, Microsoft, Apple, Amazon, Alphabet and Meta in the $1 Trillion Club was originally published by The Motley Fool

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