Investing

Forget Nvidia: This Stock Is the Next Millionaire Maker

Kristin Hitchcock

Published: July 18, 2024 1:08 pm

Last Updated: July 18, 2024 9:42 pm

The semiconductor industry is the backbone of modern technology, powering everything from smartphones to supercomputers. For years, NVIDIA (NASDAQ: NVDA) has reigned supreme as the dominant force in graphics processing units (GPUs), capturing the imagination of investors and gamers alike. $1,000 invested in NVIDIA at IPO would be worth $274,997.38 today.

However, a seismic shift may be underway.

Advanced Micro Devices (NASDAQ: AMD) has emerged from NVIDIA’s shadow. With a relentless focus on innovation and a commitment to delivering exceptional performance, AMD is starting to gain traction in several high-growth markets. It’s this traction that makes the company a compelling investment opportunity for those who are okay with risk.

AMD’s aggressive pursuit of market share in gaming, data centers, and artificial intelligence (AI) is driving its resurgence. We’ll take a deeper look at what this looks like, delving into the company’s performance and future prospects.

Key Points to Know:

• AMD is gaining market share in high-growth markets like gaming, data centers, and AI. The company is innovating and offering competitive pricing, which is leading to strong financial performance.
• AMD has a number of advantages that position it well for future growth.
• There are also risks to consider when investing in AMD. These risks include intense competition, economic downturns, supply chain disruptions, technological shifts, and execution risk.
• You should grab a complimentary copy of our “The Next NVIDIA” report, which covers more information on NVIDIA and similar stocks.

AMD’s Strong Position in Growing Markets

AMD has positioned itself well in several high-growth markets, driving its recent growth. Let’s take a look at what these markets are:

Gaming

The gaming industry is experiencing explosive growth. PC gaming is becoming more and more popular, and esports are beginning to get off the ground in many places. AMD has capitalized on this trend with its powerful and affordable Radeon graphics cards.

The company focuses on delivering great performance at a competitive price point. This goal resonates with many gamers, leading to the rise in popularity of AMD’s graphics cards. Despite NVIDIA’s long-time lead, AMD is starting to gain a significant market share.

Data Centers

The demand for data center infrastructure is skyrocketing as businesses and organizations increasingly rely on cloud computing and big data analytics. AMD’s processors have become a compelling alternative to traditional CPUs. AMD advertises that its processors have superior performance, energy efficiency, and scalability.

And it seems that the advertising is right. More and more cloud service providers and computing centers are turning to AMD for their processing needs. Thanks to the exponential increase in data that needs processing, data centers are expected to grow at an annual rate of 10%. That leaves the door wide open for AMD to gain a significant market share.

Artificial Intelligence

AI seems to be everywhere these days. It’s not surprising that more and more industries are starting to implement AI heavily into their current offerings. AMD is also actively investing in AI technologies, developing products that can handle the unique requirements of running AI. The company’s GPUs and CPUs offer a strong starting point and are already utilized by many companies to run AI applications.

As the AI market continues to expand, AMD may take a good portion of this growth.

AMD’s Advantages

While AMD already has a decent market share of the industries above, this company also has several advantages that make us hopeful for its future. It’s a combination of technological innovation and relentless focus:

• Technological Leadership: AMD’s commitment to research and development has yielded real results, like the Zen and RDNA. These innovations led to AMD’s products becoming better, simply put. Unlike some other tech companies, AMD knows how to innovate and apply those innovations.
• Strong Product Portfolio: AMD offers a comprehensive range of high-performance processors and GPUs that cater to a diverse customer base. Gamers and anyone who just wants a decent computer is a potential AMD customer. Data centers regularly purchase AMD’s products, and companies developing software lean on AMD’s GPUs. This broad portfolio allows AMD to put itself in a very competitive position. They aren’t reliant on a single industry to be successful.
• Competitive Pricing: One way AMD sets itself apart is its pricing. It delivers high-performance products that are much more affordable than the competition. For instance, AMD’s latest GPU costs around $250 for the cheapest option. In comparison, NVIDIA’s newest GPU easily costs over $600.

AMD is set to grow exponentially thanks to these factors, making it a very impressive investment.

Financial Performance and Valuation

Of course, the numbers are important, too. Luckily, AMD has performed very well so far in 2024. Its revenue has surged to $5.5 billion, reflecting a 2% year-over-year increase. Notably, the Data Center segment emerged as a standout performer, with revenue soaring 80% year-over-year, driven by the ramp-up of MI300 AI accelerator shipments and the widespread adoption of EPYC processors.

The gross margin expanded to 47%, showing AMD’s capability to streamline its cost structure and gain value in the market. On a non-GAAP basis, the gross margin reached an impressive 52%. Although the company reported a net income of $123 million, when adjusted for non-GAAP measures, the net income stood at a more substantial $1 billion.

All of this information shows us that AMD’s financial performance is supported by the growing demand for GPUs and CPUs. The company’s ability to capitalize on the AI boom can be a serious driver of its financial success.

Of course, it’s also important to remember that the semiconductor industry is cyclical and subject to serious fluctuations. Things tend to move fast in the tech industry, making predictions even harder.

The Risk of Investing in AMD

No investment is without risk, and that includes AMD. While AMD has demonstrated strong financials recently and has significant growth potential, there are many risks to keep in mind:

• Intense Competition: All the sectors that AMD operates in are highly competitive, with many established players (like NVIDIA). Maintaining technological leadership and product differentiation will be crucial for AMD’s continued success. Competing within this environment is simply rough!
• Economic Downturns: Economic recessions can significantly impact demand for semiconductors, particularly in consumer-oriented segments like gaming and PCs. When people are struggling to put food on the table, they aren’t purchasing high-end gaming computers.
• Supply Chain Disruptions: The semiconductor industry depends on a complex global supply chain. Geopolitical tensions, natural disasters, or trade disputes could result in supply chain disruptions, impacting component availability, production costs, and product delivery timelines.
• Technological Shifts: Technology develops exceptionally quickly. Products can quickly be rendered obsolete. AMD has to invest a lot into research and development to even stay on the map!
• Execution Risk: Staying on track and executing AMD’s market strategy has some risks involved. Launching and developing new products (all the time), scaling production, and trying to vie for market share is a lot to juggle. This isn’t a company that can sit back and relax.

Luckily, AMD can do a lot to mitigate some of this risk. As we’ve seen, AMD has many revenue streams. If one industry doesn’t work out, it wouldn’t be a game-over for this company. That’s great news since it prevents the company from fluctuating quite as much due to a drop in one industry.

AMD has also already proved that they can innovate and regularly come out with new products. They aren’t a company that has sat still in the past, and it’s likely they’ll continue pushing the bar in the future!

We also like AMD’s current financial situation. They have ample cash reserves that give them some wiggle room and help them invest when they can.

Still, you shouldn’t invest in AMD if you’re completely risk-averse. Investing in any single company is risky. (ETFs are much less risky if you’re looking for a very diversified option.) Investing in a “potential” company is even more risky.

While you’re looking into it, consider our brand-new “The Next NVIDIA” report, which is completely free and dives more into AI winners.