Shares of Advanced Micro Devices Inc. (AMD) have seen a remarkable 140% increase over the past year, and according to analyst Pierre Ferragu at New Street Research, there’s still an opportunity to jump on the bull train.
Ferragu upgraded AMD’s stock to a buy rating, setting a target price of $215 for late 2024. This implies more than 25% upside from Tuesday’s close, and the shares were already up over 5% in Wednesday’s session.
Dominance in AI Architectures & Ecosystems
Ferragu’s upgrade is based on his research on AI architectures and ecosystems, which suggests that graphics processing units (GPUs) will continue to dominate. He also highlights that there is likely to be structural scarcity in the market for several years, thus allowing AMD to establish a defensible challenger position.
Strong Position in the Chip Market
Considering a scenario where the overall data-center chip market attracts $400 billion in annual spending by 2027, Ferragu believes that AMD not only emerges as the most attractively valued option but also shows potential for share gains and slow adoption.
In other words, even if market shares against Intel stabilize or slow in central processing units (CPUs), and if Gaming and Embedded growth remains slow due to the current correction, AMD could still achieve over 20% revenue growth per year over the next four years.
Preferred Choice in Data-Center AI
Ferragu sees AMD’s stock as the preferred choice for investors looking to capitalize on the rapid adoption of data-center AI chips. Additionally, he mentions that shares of Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) appear to be the “most de-risked” option, with limited market-share uncertainty and promising valuation in both fast and slow adoption scenarios.
With AMD’s strong fundamentals and prospects for growth, there seems to be plenty of room for investors to benefit from this late but promising opportunity.
