Chipmaker Advanced Micro Devices (NASDAQ: AMD) doesn’t have the market share or Wall Street buzz that archrival Nvidia does in the artificial intelligence (AI) race. But rest assured, second place isn’t necessarily a bad place to be.
The company has an ocean of opportunity ahead of it, with a rapidly growing AI market that will give AMD every opportunity to grab a piece. Also, market volatility has returned, and shares are down nearly 20% over the past month.
I’ll explain why this is a stellar buying opportunity for long-term investors.
A Viable Contender in the AI Chip Market
While Nvidia dominates the AI chip landscape with an estimated market share of up to 90%, AMD is positioning itself as a viable alternative. The company’s MI300 series offers more power than Nvidia’s H100 series, coupled with the ROCm software, providing developers with greater flexibility due to its open-source nature.
Despite Nvidia’s stronghold, companies like Meta and Microsoft are opting for AMD’s MI300 chips as an alternative. Even as Nvidia leads the pack, AMD’s capabilities as a significant competitor can’t be overlooked.
AMD’s CEO Lisa Su foresees the AI chip market expanding to over $400 billion by 2027. With AMD’s data center revenue only at $6.5 billion in 2023, even a small portion of this growing market could lead to substantial growth for the company.
Promising Financial Outlook
Analysts are optimistic about AMD’s future, expecting steady growth. While Nvidia has seen triple-digit growth fueled by AI trends, AMD aims for a modest but notable 43% annual earnings growth over the next three to five years, which is realistic given the projected expansion of the AI chip market.
Previously trading at 56 times its estimated 2024 earnings, the recent stock dip has lowered AMD’s valuation to 43 times earnings. This presents a compelling opportunity, especially with a price/earnings-to-growth (PEG) ratio of just 1.
Navigating Market Volatility
Investors need to stay cautious amidst market fluctuations. A prudent strategy like dollar-cost averaging can help mitigate risks and capitalize on potential price dips. This gradual approach allows investors to build a position over time and take advantage of favorable market conditions.
Remember, just because a stock seems cheap now doesn’t guarantee immunity from further declines. Keeping a level-headed approach and being prepared for further volatility is key to long-term investment success.
Strategic Investment Considerations
Before diving into Advanced Micro Devices stock, consider essential factors such as growth potential, market conditions, and your investment horizon. While AMD shows promise, exploring a diverse range of investment opportunities can maximize returns and minimize risks.
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