AMD (AMD) has come up smartly off its late 2022 lows.
Its story is now all about “pervasive AI,” sold to servers and device makers.
The AI story has just begun to unfold.
Advanced Micro Devices (NASDAQ: AMD) stock sold for $2 when CEO Lisa Su joined the company in 2012 were worth $158 at the height of the tech boom in 2021.
But business is about what you have done for me lately, and what you’re about to do. The tech wreck in 2022 cut AMD by 60%. It is now staging a comeback, trading above $93, a market cap of nearly $154 billion.
AMD’s acquisition of Xilinx last year brought it Vitis AI, an artificial intelligence development platform. AMD’s AI Engine handles both signal processing and machine learning, both key to what I call the Machine Internet.
AI isn’t just about how you interact with computers. It’s how computers interact with each other. AMD stock is set for another big move.
The Bear Case
Despite this bears are lining up against AMD stock. PC sales are crashing. Prices for gaming cards are falling. Amazon.com (NASDAQ: AMZN) is designing its own silicon to compete with AMD for their own business.
The bear market did not make AMD stock cheap. It still sells for an eye-popping 112 times earnings and offers no dividend. Stock buybacks that once supported the price have been sharply reduced.
Yet 19 of the 25 analysts following AMD at Tipranks are telling clients to buy the stock. One expects it to double over the next year.
The Bull Case
Our David Moadel thinks the bad news is priced in. When AMD next reports earnings on May 2, investors may be in for a positive surprise. The folks at Piper Sandlin agree, giving AMD stock an overweight rating. Other analysts are calling this a buy the dip opportunity.
AMD is continuing to crush rival Intel (NASDAQ: INTC) and the whole world now knows it. Price cuts have created global bargains, with AMD-based laptops selling in India for the equivalent of under $600.
Software is now how chips advance, and AMD continues to deliver new software. Its new video accelerator promises to dramatically improve local as well as long-distance streaming.
Xilinx, which makes Field Programmable Gate Arrays (FPGA), chips that can be pre-loaded with software, looks like a smart acquisition. It lets AMD sell systems instead of just chips.
The bearishness of some should provide a floor for AMD stock, the bulls say.
The more customers treat generative AI the way they do conventional search, the more important AMD chips on both the client and server side become, the bulls add. AMD calls this next stage of the business “pervasive AI,” driving demand in both edge devices and data centers.
The Bottom Line
I bought AMD as it was falling and remain underwater on the investment.
That doesn’t mean I’m selling. Technology is how productivity advances. It’s how inflation is crushed. AI is scaring people now, because the output looks human, but it has been delivering productivity gains for years. Inflation creates huge incentives for cutting costs and buying technology is the best way to do that.
I also talk about buying the jockey, not the horse. I have believed in Su’s management since she became CEO. I see no reason to change that view.
AMD stock will bounce around for some time, but when I look at the future, I see strength.
