Could it be that Advanced Micro Devices serves as a wealth-generating investment opportunity for millionaires?
In the realm of AI stock market dominance, it's hard to overlook Nvidia. This tech giant commands an astounding 88% of the AI chip market and has delivered mind-blowing returns of 2,700% over a five-year span, producing countless millionaires and billionaires along the way.
While Advanced Micro Devices (AMD) has managed a relatively modest 250% growth during the same period, the question remains: Can the burgeoning AI opportunity propel AMD to replicate Nvidia's extraordinary returns? Let's delve deeper for answers.
What constitutes a millionaire-maker stock?
When I visualize a millionaire-maker stock, I see an affordable company capitalizing on a lucrative business prospect that could potentially double, triple, or even quadruple in value within the coming years. Given initial appearances, the AI sector appears to be AMD's next great leap.
As suggested by analysts at Bloomberg, the AI market may surge by 40% to 55% yearly, from $185 billion last year, to a staggering range of $780 to $990 billion by 2027. Should AMD successfully tap even a minute fraction of this colossal opportunity, the company stands to gain significantly. However, the company's performance to date leaves much to be desired.
Q3 revenues rose by a moderate 18% year-over-year to hit $6.8 billion, with gross margins expanding by 3 points to reach 50%. In contrast, Nvidia's revenue swelled by 122% year-over-year to an impressive $30 billion, boasting a gross margin of 75%. However, it's crucial to consider the differing business compositions of the two companies.
Some AMD sectors aren't carrying their weight
Unlike Nvidia, which generates almost 90% of its revenue from its data center segment (selling its cutting-edge GPUs for AI and other applications), AMD is more diversified. In Q3, the smaller company drew around 51% of its sales from non-data-center segments. Some of these sectors (like gaming) underperformed, dragging AMD's overall performance down.
Yet, if we isolate AMD's data center business from the rest of the company, Q3 results paint a drastically different picture – with segment sales rocketing by an astounding 122% year-over-year to $3.5 billion. This figure aligns more closely to Nvidia's growth rate.
AMD's leadership aims to push forward data center business growth through new product releases. In October they introduced their Instinct MI325X, a new line of AI chips destined to challenge Nvidia's Blackwell chips by early 2023. While AMD has historically struggled to displace Nvidia's industry dominance, the company may have a competitive edge in terms of potentially cheaper pricing due to Nvidia's high gross margins, approximately 75%.
Additionally, AMD plans to release new chips annually to match Nvidia's breakneck pace of innovation. Another product, the Instinct MI400, is already slated for release in 2026.
Is AMD a millionaire-maker stock?
AMD's fate hinges on whether the AI sector progresses from being an experimental fad to a major economic driver. At present, it's too soon to make definite predictions. But over the upcoming quarters, investors can anticipate accelerated growth as AMD's data center business makes up an ever-larger share of sales.
With a forward P/E of 27, AMD's stock appears strikingly attractive for a company that could soon hit triple-digit growth rates. It's poised to outperform the market significantly in the near future. With the essential ingredients for a long-term millionaire-maker, shares seem like an excellent investment choice.
Investors interested in capitalizing on the AI market might consider diversifying their portfolios by considering stocks like AMD, as analysts predict the AI market could surge by 40% to 55% annually, reaching up to $990 billion by 2027. (money, finance, investing)
If AMD manages to capitalize on this opportunity and successfully grow its AI-focused data center segment, it could potentially deliver impressive returns, making it a potential millionaire-maker stock. (money, finance, investing)
