There is no doubt that Nvidia (NVDA 1.52%) There’s a top artificial intelligence (AI) stock you can buy right now, given its takeover of the market for AI semiconductors. Nvidia commands a 92% share of the AI graphics processing unit (GPU) market thanks to its early move. This space provides chips to OpenAI for training the very popular chatbot ChatGPT.
Moreover, Nvidia is taking steps to ensure it remains a top player in the AI chip market, such as doubling its innovation pace and reportedly for its own AI chips. can enter a profitable market. These are some of the reasons why analysts are predicting Nvidia to grow at a compound annual growth rate (CAGR) of 102% over the next five years.
Given that the AI chip market is expected to achieve a CAGR of 37.5% by 2029 and generate annual revenue of $147 billion, it’s not surprising to see that analysts expect Nvidia to grow at a breakneck pace. This strong growth could help Nvidia justify its 40-year high sales.
However, there is another chipmaker — Advanced Micro Devices (AMD -0.44%) — It’s currently trading at a relatively cheap 12.3 times sales which you’ll want to watch closely, as it could grow significantly over the coming year by giving Nvidia competition.
AMD’s aggressively priced AI chips could help drive its strong growth.
AMD launched its MI300 Instinct family of data center AI accelerators in December to take on Nvidia, and the good news is that these chips are gaining solid traction among consumers. AMD expects sales of its AI chips to generate at least $3.5 billion in revenue in 2024, up from its original forecast of $2 billion.
However, Citi analyst Christopher Danley (as reported by Tom’s Hardware) believes that AMD is underestimating its AI revenue potential. Danieli predicts that AMD could sell $5 billion worth of AI chips in 2024, a number that is expected to reach $8 billion next year. There are two reasons for this optimism.
First, CEO Lisa Xu commented on the company’s January earnings conference call with analysts that AMD has “additional capacity to support upside demand.” For comparison, consumers reportedly have to wait 52 weeks to get their hands on Nvidia’s AI GPUs, so it wouldn’t be surprising to see them turn to AMD to fill the supply gap.
Second, AMD’s AI accelerator is reportedly very competitively priced despite offering solid specs compared to Nvidia’s offerings. While AMD has not disclosed official pricing for its MI300 processors, Citi estimates that it is selling a unit of its flagship MI300X processor to Microsoft for $10,000. Other customers are reportedly paying $15,000 for this particular chip, which packs 192 gigabytes (GB) of high-bandwidth memory (HBM).
For comparison, Nvidia’s H100 AI GPU, equipped with 80 GB of HBM, reportedly sells for between $30,000 and $40,000. Also, Nvidia’s upcoming H200 AI GPU will be equipped with 141 GB of HBM’s latest generation. So, by offering users a larger memory size — which comes in handy when training large language models — at a price that’s reportedly much lower than Nvidia’s offerings, AMD is replacing its AI chip with its own. Trying to make a presence felt.
A higher-than-expected increase in earnings could send AMD stock higher.
How much upside can investors expect?
The consensus analyst estimate is that AMD’s revenue will grow 14% to $25.8 billion in 2024. Assuming the forecast is based on AMD’s guidance of $3.5 billion in AI chip revenue, the additional $1.5 billion in sales that Citi expects the chipmaker to generate from AI this year would push its top line to $27.3 billion. Can take up to a dollar. This will boost AMD’s 2024 top-line growth to 20%.
We saw earlier that AMD is now trading at 12.3 times sales. A revenue multiple of $27.3 billion would take its market cap to $336 billion, up 20 percent from current levels.
The most bullish analyst gives AMD a 12-month price target of $270, which points to a 56% upside from current levels. If the chipmaker manages to generate more AI revenue than Wall Street forecasts, which it could do by acquiring a good chunk of its foundry partner’s production capacity, don’t be surprised to see AMD shares soar. Reach the high price target of the Street. in the coming year.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a Disclosure Policy.