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Key Points
- After a brutal month, tech is back on the rise.
- AMD has outperformed recently on strong earnings.
- If you’re interested in the top stocks in AI, don’t miss out on grabbing a complimentary copy of brand-new “The Next NVIDIA” report . It exhaustively covers 3 stocks that could 10X in the coming years.
Tech stocks got hammered in July, with the broad sector posting falling by -7.22%. Losses were even more pronounced for some of its biggest names. Apple Inc. ( NASDAQ: AAPL ), for example, lost -7.38%% from July 16 to July 25, while semiconductor behemoth NVIDIA Corp. ( NASDAQ: NVDA ) lost -23.11% between July 10 and July 30.
But this week, Big Tech kicked off earnings and so far, the results have been positive. Apple, which holds its earnings call on August 1, is 2.32% since July 25, and NVIDIA has gained back 11.66% between July 30 and July 31. However, its another tech company that has caught my eye, and after its second-quarter earnings call on July 30, I expect big things in throughout the rest of the year and well into 2025.
Investing in NVIDIA's Biggest Competitor
It is no secret that NVIDIA is the dominant player in the semiconductor and AI fields. But with the industry expanding at an exponential rate, not even the third-largest publicly traded company by market cap can handle the increased demand. Enter Advanced Micro Devices Inc. ( NASDAQ: AMD ), a $233.33 billion market cap company headquartered in Sunnyvale, Calf.
Advanced Micro Devices held its earnings call after the market closed on July 30, and the news was enough to drive up shares by 12.67%. The chipmaker beat on earnings and revenue by 1.26% and 1.99%, respectively. Forward guidance was equally impressive, with third-quarter revenue expectations of approximately $6.7 billion. At the midpoint of revenue forecasts, the estimated year-over-year growth would be 16%.
That is a big reason why the Wall Street Journal has given Advanced Micro Devices a one-year high-end price target of $250 per share, but there are three reasons why I am so bullish on AMD through 2025.
No. 1: Rapidly Expanding Profitability
According to Grand View Research, the compound annual growth rate (CAGR) for the global market for AI-essential microchips is an alluring 8.2% from 2024 to 2030. Companies operating in this space are positioning to address the rapid expansion of demand, but Advanced Micro Devices is not only one of the best-positioned chipmakers to address those needs, the company is expanding its profitability in the process.
On its second-quarter earnings call on July 30, Lisa Su, Advanced Micro Devices' chairwoman, president and CEO, said that "Profitability is increasing by a double-digit percentage driven by higher-than-expected sales of our Instinct, Ryzen and EPYC processors."
The company is now operating at a trailing 12 month (TTM) gross profit margin of 46.76%, a TTM operating margin of 2.55% and a TTM net margin of 4.89% — all three of which are the highest for the company since September 2010.
No. 2: Growing Data Center Business
Yesterday, I wrote about one facet of the real estate sector that is poised for explosive growth once the Federal Reserve begins cutting its benchmark interest rate: data center REITs . As the need for cloud computing and AI expand, so too does the demand for data centers. Fortunately for Advanced Micro Devices, this is in their purview.
The data center market size is expected to grow from $301.8 billion in 2023 to $622.4 billion in 2030, and Advanced Micro Devices is uniquely positioned to take advantage of that growth. The company's data center segment increased by an astounding 115% year over year, according to Lisa Su's earnings call announcement, "to a record $2.8 billion driven by the steep ramp of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales."
That $2.8 generated in one quarter from Advanced Micro Devices' data center segment should seamlessly grow alongside the expansion of data center facilities in the U.S. and abroad between now and 2030.
No. 3: An A-List of Big Tech Clients
Microchip and semiconductor demand for AI applications is coming from all sorts of companies in a variety of industries. However, one thing that promises ongoing growth for Advanced Micro Devices is its A-list of Big Tech clients.
On the company's second-quarter earnings call, Lisa Su stated that "Broadcom, Cisco, HP Enterprise, Intel, Google, Meta and Microsoft all joined us to announce Ultra Accelerator Link, an industry standard technology to connect hundreds of AI accelerators that is based on AMD's proven Infinity Fabric technology." The CEO added that "Microsoft expanded their use of MI300X accelerators to power GPT-r Turbo and multiple copilot services, including Microsoft 365 Chat, Word and Teams."
Not only are the company's products and services in high demand, Advanced Micro Devices has ongoing contracts with some of the largest companies operating in the tech sector, which are expanding budgets for AI implementation.
The Takeaway
Between the forecast growth of AI, cloud computing and data centers, chipmaker stocks continue to look attractive in the second half of 2024 and well into 2025. Advanced Micro Devices — with its rapidly expanding profitability, growing data center segment and a superior client list — is among the best positioned to take advantage of these growth factors.
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