The artificial intelligence (AI) market exploded last year, becoming one of the fastest-growing industries. Data from Grand View Research shows the AI market is projected to expand at a compound annual growth rate of 37% through 2030, which would see it exceed a value of $1 trillion before the end of the decade. Companies worldwide have restructured their businesses to focus on the budding sector, presenting a variety of investment opportunities. Advanced Micro Devices (NASDAQ: AMD) and Microsoft (NASDAQ: MSFT) are some of the most attractive options, with one making moves in AI chips and the other heavily investing in the software side of the industry.
The Rise of Advanced Micro Devices
Since its founding more than 50 years ago, AMD has become one of the biggest threats in chips. The company hasn’t always been first to a market but has proven its ability to carve out a lucrative position in almost any part of the industry with its advanced technology and decisive leadership. AMD CEO Lisa Su took the helm in October 2014 and since then, the company’s shares have soared over 4,000% as it has become a leader in central and graphics processing units (CPUs and GPUs).
As a result, AMD’s expansion into AI strengthens its long-term outlook. AMD will begin shipping its MI300X GPU this year, designed specifically to challenge Nvidia’s offerings. The AI chip already has Microsoft’s Azure signed on as a customer, with AMD in talks with several other tech companies. It’s still early days for AMD’s AI journey, but it’s likely to go far in the market in the coming years.
The Microsoft Approach to AI
Microsoft got a head start in AI, investing $1 billion in ChatGPT developer OpenAI in 2019. The company has since increased that investment significantly and now boasts a 49% stake in the start-up. Microsoft’s partnership with OpenAI has granted it access to some of the most advanced AI models, giving it an edge over rivals like Amazon and Alphabet.
Meanwhile, Microsoft has delivered impressive quarterly earnings. In the first quarter of 2024 (ending September 2023), the company posted revenue growth of 13% year over year, beating Wall Street forecasts by nearly $2 billion. Gains came from considerable growth in its productivity and cloud-related segments, which saw revenue increase by 13% and 19%, respectively.
The Better AI Stock?
AMD and Microsoft have solid outlooks in AI over the long term. AMD looks poised to shake up the chip market with the launch of its new GPU. Meanwhile, Microsoft has the tech and brand loyalty to become the go-to for anyone looking to integrate AI into their workflow.
However, the charts below suggest AMD might have more stock growth potential over the next two fiscal years. According to the data, AMD’s earnings could hit $5 per share by fiscal 2026, while Microsoft’s will likely reach $15 per share. Yet multiplying those figures by AMD’s forward price-to-earnings ratio of 55 and Microsoft’s 34 yields stock prices of $275 and $510, respectively. Looking at their current positions, AMD’s share would rise 87% and Microsoft’s 36% over the next two fiscal years.
As a result, AMD looks like the better AI stock right now and an attractive buy at the start of 2024.
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