A key stock market event this week is earnings from Nvidia, but chip maker rival Advanced Micro Devices could be the better chip stock right now as the the market for central processing unit, or CPU, chips is expected to boom.
AMD stock rose 2.9% to $470.65 in premarket trading on Tuesday after ending Monday down 3.5%. Advanced Micro Devices, and other chip makers, have struggled this month. AMD shares have fallen 4% in August as of the closing bell on Monday and have declined 21% from a record closing high of $580.91 on June 30.
The recent weakness shouldn't overshadow the stock's strong run. AMD had gained 113% for the year heading into the trading session on Tuesday and has revved 174% higher over the past 12 months.
AMD could run higher, according to Raymond James analyst Simon Leopold.
Leopold on Tuesday upgraded AMD to a "strong" Buy from Outperform with a price target of $641 from the previous $565. That new price target represents 40% upside from the closing price of $456.75 on Monday.
The basis for the bullish view was the firm's forecast that revenue from the server CPU market will grow at a 44% five-year rate to $201 billion in 2030.
Agentic artificial-intelligence will be the principal new growth engine for the CPU market. The firm estimates that conventional data-center CPUs will be about about $33.5 billion in revenue, with $83 billion from AI CPUs, and $85 billion in agentic CPUs.
"Agentic workloads represent the largest incremental pool as persistent agents generate orchestration, retrieval, database, sandbox, application and tool-execution workloads that largely run on CPUs," the firm wrote.
Many chip makers will benefit from this market growth, but Raymond James sees AMD as the best positioned.
"Among logic semiconductor vendors, AMD, Arm, Intel and Nvidia all have meaningful CPU exposure," Leopold wrote.
"AMD offers the strongest combination of direct earnings leverage, data-center positioning and market-share gains," he added.
Leopold added that Arm Holdings will benefit from server royalty growth, custom silicon and its planned merchant CPU business.
Intel, meanwhile, participates in a stronger market but "remains exposed to share loss, while Nvidia's rapidly growing CPU franchise is strategically important but remains small relative to its accelerator business," according to Leopold.
AMD had long been the second choice for CPU chips behind Intel, while its graphic processing units, or GPUs, were No. 2 to Nvidia. AMD's server CPUs are now considered by many to be better than Intel's, and the company claims to have a 40% market share, and that's on the road to 50%.
At the beginning of the AI data center boom, AMD was well behind Nvidia, and it still is. But the company's recent Advancing AI conference revealed how far it had come in matching technologically Nvidia's Vera Rubin AI server. The new AMD Helios servers combine AMD GPUs, CPUs, and networking chips, supported by maturing software.
AMD, earlier this month, reported solid but unspectacular second-quarter earnings. AMD's outlook for the third quarter also edged expectations with $13 billion in sales and adjusted earnings of $1.93 a share the midpoint of the company's forecasted range.
This all means that AMD is chipping away at Nvidia's moat. Raymond James believes the gap is less than many believe.
Now it's Nvidia's move after the closing bell on Wednesday.
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