Is AMD Stock a Buy?
Advanced Micro Devices (NASDAQ: AMD) has rallied investors this year, with its shares up around 70% since Jan. 1. Wall Street has grown bullish about the company's growth prospects in artificial intelligence (AI) and the overall trajectory of its business.
As a leading chipmaker, AMD has the potential to profit from multiple tech sectors in the coming years. The company's hardware currently powers a wide variety of devices and platforms, from cloud services to AI models, game consoles, laptops, and more.
Moreover, despite the recent rally, the company's shares were down 31% from the all-time high reached in November 2021, suggesting plenty of room for growth. Here's why AMD stock is an attractive buy in 2023.
Gearing up to challenge Nvidia
AMD started this year on the back foot. After a challenging 2022 fraught with declines in the PC industry, the launch of OpenAI's ChatGPT in November highlighted how far behind AMD fell regarding AI chips. Its biggest competitor, Nvidia, became the toast of the town as the primary supplier of graphics processing units (GPUs) to ChatGPT, with its stock up about 180% year to date.
However, AMD has since pivoted its business to AI development and is making promising strides to challenge Nvidia. A Bloomberg report in early May revealed that Microsoft is supporting AMD's AI chip expansion by providing financial and engineering resources with the goal of creating an alternative to Nvidia.
The partnership strengthens AMD's outlook in AI as Microsoft is the biggest investor in OpenAI and holds exclusive licenses to several of the start-up's AI models. As a result, Microsoft's guidance could prove invaluable to AMD's development in the sector.
In mid-June, the semiconductor company debuted the MI300X, a high-performance GPU meant to compete directly with Nvidia's AI offerings. AMD has yet to announce any new partnerships. However, according to Reuters, Amazon Web Services (AWS) is reportedly testing and considering utilizing AMD's MI300X.
A collaboration with AWS would be a major win for AMD, especially as the cloud service has primarily used Nvidia chips until now. AWS would be a welcome addition to AMD's list of cloud clients, including Microsoft's Azure and Alphabet's Google Cloud.
A stock that lets investors back multiple markets
One of the best reasons to invest in AMD is its thoroughly diversified business. Nvidia may have an edge in GPUs. However, AMD has excelled in central processing units (CPUs) for years, as well as in developing GPUs.
Since the launch of AMD's Ryzen line of CPUs in 2017, the company has consistently stolen market share from Intel. In fact, from the first quarter of 2017 to the fourth quarter of 2022, Intel's CPU market share has fallen from 81.9% to 62.8%. Meanwhile, AMD's share rose from 18.1% to 35.2%.
Moreover, AMD increasingly became a go-to in tech for companies needing custom chips to power their devices. In 2020, the company became the exclusive supplier of chips to Microsoft's Xbox Series X|S and Sony's PlayStation 5 game consoles. The partnerships led AMD to similarly provide chips to several handheld PC gaming consoles. Meanwhile, the company's hardware powers countless laptops and custom-built PCs worldwide.
Additionally, AMD's acquisition of Xilinx last year has further extended its reach in tech. Xilinx is known for developing processors for specialized tasks in industries such as space, aerospace and defense, and industrial purposes. The purchase diversified AMD's earnings, with its embedded segment hitting $1.5 billion in revenue in Q1 2023 and $798 million in operating income.
AMD may be playing catch-up in AI, but the company's market cap of $178 billion compared to Nvidia's $1 trillion suggests the company could have more untapped growth potential and be a lower-risk way to back the booming industry. In addition to a varied business, AMD is a stock worth buying this year to hold long-term.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon.com, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 calls on Intel. The Motley Fool has a disclosure policy.
