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AI's popularity has really pumped up a lot of stocks in the past year, $Advanced Micro Devices(AMD)$ being one of them. Riding on this AI wave, AMD's revenue and profits are both skyrocketing.
Thanks to the growth in its AI chip business, AMD's stock has skyrocketed 88% in the past six months. But, considering its pricey valuation, people are wondering if it can keep up the momentum.
Right now, AMD's forward P/E ratio is 62, which is pricey compared to its industry peer $NVIDIA Corp(NVDA)$ , who's sitting at 35. And Nvidia dominates the AI chip market with significantly faster growth.
That probably explains why AMD's stock has been slipping in recent trading days. Some Wall Street analysts think AMD's stock has already peaked. But it might regain its mojo, as it's exploring more ways to leverage AI applications.
According to Gartner's prediction, AMD's client processor revenue could surge in 2024. Meanwhile, its datacenter business is also accelerating.
AMD expects revenue to hit nearly $26 billion this year, up from 2023, when revenue fell 4 percent to $22.7 billion. More importantly, analysts predict even faster growth in 2025 and double-digit growth again in 2026.
The stock's current price-to-sales ratio is nearly 14, which is pricey compared to its five-year average of 7.4. So, if AMD can hit its $40 billion sales target in 2026 and trade at 10 times earnings, the market cap would grow to $400 billion.
With the help of AI, AMD's stock price-to-sales ratio could go even higher. As a result,AMD stock could be in for a wild ride in the next three years!
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