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Will these chipmakers score as high as NVDA?

Advanced Micro Devices (AMD), Intel (INTC) and Taiwan Semiconductor Manufacturing (TSM) are major players in the chip manufacturing and artificial intelligence (AI) segments, but have seen mixed success over the past two years – none of them have Nvidia’s ( NVDA ) groundbreaking success. Personally, I’m bearish on Intel and TSMC, but I’m bullish on AMD, expecting the company to experience continued market share gains and share price appreciation over the medium term.

While AMD is unlikely to reach the heights we’ve seen with Nvidia, the stock could see further supportive trends over the next three to five years. Meanwhile, I’m put off by TSMC due to its geographic concentration risk and Intel represents too much of a risk after years of technological underinvestment.

Let’s start with AMD. The stock has risen dramatically over the past two years, but not nearly as much as Nvidia. However, it may be Nvidia’s biggest competitor in terms of technology capabilities in the fast-growing data center and AI segment. The company is also making significant progress in developing its “full-stack” offering – software that complements the hardware – which could significantly increase its competitiveness in the AI ​​market.

AMD’s recent acquisition of ZT Systems marks an important step in this full-stack direction and represents the first major step toward comprehensive AI software solutions. This strategic move is expected to improve system-level integration, shorten time-to-market for AI solutions and expand AMD’s reach in the hyperscale market.

And there is enough market to grow in. That’s because AMD currently has less than 5% of the AI ​​GPU market share and about 11% of the total AI market share (including CPUs). AMD is positioning itself for growth, claiming that its EPYC processors and Instinct accelerators offer superior performance for AI inference, especially in data centers.

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The problem with AMD is that quite a bit of growth expectations have already been priced in. The stock currently trades at 44.4x forward earnings and has a price-to-earnings-growth (PEG) ratio of 1.08. So while the company is expected to grow earnings at around 40% per year over the medium term, there is clearly downside risk due to its significant price-to-earnings (P/E) ratio. Still, I am positive about AMD.

I expect profits to rise in the coming years as hyperscalers look to Nvidia alternatives as part of a broader effort to reduce risk and expand the supply chain. I understand the stock is pricey, but I really don’t see these AI-related tailwinds slowing down for AMD.

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