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We came across a bullish thesis on Advanced Micro Devices, Inc. (AMD) on Substack by Oliver | MMMT Wealth. In this article, we will summarize the bulls’ thesis on AMD. Advanced Micro Devices, Inc. (AMD)'s share was trading at $101.67 as of March 5th. AMD’s trailing and forward P/E were 101.67 and 22.12 respectively according to Yahoo Finance.
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AMD has long operated in the shadow of NVIDIA, struggling to compete with a company that has dominated the AI market. While NVIDIA’s GPUs are the backbone of AI model training, AMD is positioned to benefit from the next phase of AI: inference. Inference requires less compute power and leans more on CPUs, an area where AMD has a competitive edge due to its chiplet architecture, which enables seamless integration of CPUs and GPUs. This advantage has already gained traction, with Meta running its latest model entirely on AMD chips, crediting the company for its inference success. Despite the bullish outlook for semiconductors, AMD has underperformed, dropping 43% over the past year, highlighting the challenges of competing against a once-in-a-lifetime company like NVIDIA. However, this decline has created an attractive valuation opportunity.
AMD’s revenue is growing at 24.2%, and with an EV/Sales ratio of 5.0x and a net income margin of 6.3%, the company is on a solid footing. If AMD can maintain a 15% revenue CAGR over the next decade, reaching $104 billion in revenue, and expand its net income margin to 25%—a reasonable target considering NVIDIA’s 56% margin—it could generate $26 billion in net income. At a 25x price-to-earnings multiple, this would imply a $650 billion valuation, a potential 4x return from today’s levels. With data center revenue comprising 69% of AMD’s business, the long-term runway for growth remains strong. The share price below $100 presents a compelling entry point, offering an asymmetric risk-reward profile. If AMD successfully capitalizes on the inference boom and continues to win major contracts, it has the potential to become a dominant force in the AI-driven semiconductor market.
Advanced Micro Devices, Inc. (AMD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 96 hedge fund portfolios held AMD at the end of the fourth quarter which was 107 in the previous quarter. While we acknowledge the risk and potential of AMD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.