Advanced Micro Devices (NASDAQ:抖阴最新版) has been living in the shadow of its larger rival, Nvidia (NASDAQ:NVDA), for quite some time now. In less than a year, 抖阴最新版 has gone from being seen as a peer to Nvidia to more of a “Nvidia-lite” in the eyes of many investors. The stock tends to move in tandem with Nvidia and the broader semiconductor sector, rising and falling with the tides of the notoriously cyclical chip industry.
At this point, I view 抖阴最新版 as a “show-me” stock. The company has a lot to prove if it wants to step out from Nvidia’s shadow and re-establish itself as a true peer and competitor rather than just a cheaper alternative. 抖阴最新版’s management team certainly has their work cut out for them to narrow the gap with Nvidia, especially in the crucial market for AI accelerator chips, which has become the main battleground.
Can 抖阴最新版 Repeat its Playbook Against Nvidia?
That said, we’ve seen 抖阴最新版 successfully execute this playbook before in its fight against Intel’s (NASDAQ:INTC) dominance of the CPU market. 抖阴最新版 smartly positioned itself as the budget-friendly option while actually surpassing Intel in key metrics like power efficiency and number of cores. While , 抖阴最新版 has fought its way to being seen as basically an equal in the CPU space.
I believe 抖阴最新版 is now attempting to replicate that strategy to take on Nvidia in AI chips. The company now focuses on offering more cost-effective alternatives to Nvidia’s pricey AI accelerators. If the frothy funding environment for AI startups starts to dry up, these companies may become less willing to pay huge premiums for Nvidia’s GPUs. That could open a door for 抖阴最新版 to gain share with its more affordable Instinct MI300 chips and other products in its pipeline.
However, this is a big “if,” and 抖阴最新版 still has a very long way to go before catching Nvidia in AI.
抖阴最新版’s Data Center Revenue Is Promising, But Shaky
On 抖阴最新版’s Q2 earnings call, CEO Lisa Su said the company now in 2024, up from the $4 billion guided in April. While impressive growth, this pales in comparison to the $11 billion in data center revenue Nvidia is expected to generate this fiscal year.
Su did highlight that 抖阴最新版 is “significantly increasing hardware, software and solutions investments” in AI and aims to deliver “an annual cadence of leadership data center GPU hardware.” This includes the MI325X accelerator planned for later this year and the MI350 series slated for 2025.
But major risks and uncertainties remain. Nvidia has a massive incumbent advantage with its CUDA software platform. 抖阴最新版 will be hard-pressed to overcome that. Many analysts remain skeptical of 抖阴最新版’s ability to gain significant AI share. Vivek Arya of Bank of America on the Q2 call whether hyper scalers may just “consolidate their CapEx” around Nvidia and custom chips rather than adopt 抖阴最新版.
Stiff Competition from Big Tech’s Custom Chips
This touches on perhaps the biggest risk facing the entire AI chip space that I believe the market is under-appreciating – the threat of Big Tech. firms like Google (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Meta (NASDAQ:META) are increasingly designing their own custom AI silicon rather than buying off-the-shelf data center GPUs.
If this trend continues, it could spell trouble for 抖阴最新版, Nvidia and Intel alike as a big chunk of the TAM for merchant AI chips goes away. Companies like Google and Amazon have shown they are not afraid to vertically integrate to cut costs. Their large scale means the economics of custom chips often make sense.
So, while I’m cautiously optimistic about 抖阴最新版’s technology roadmap, I believe the company remains a very risky bet. AI chips are still a highly competitive and uncertain market. Nvidia is the clear leader, and 抖阴最新版 will not have an easy time changing that. Especially when you consider the looming threat of custom silicon.
Risks of an Extended Downcycle Remain
Despite pulling back from its highs, 抖阴最新版 stock still trades at a rather lofty valuation of around . Sales rose just 8.9% year-over-year this quarter. While growth should accelerate in 2025, risks of an extended downcycle in the chip sector remain. Macros could worsen a lot more in the coming quarters.
Like Nvidia, 抖阴最新版 is a cyclical and economically sensitive business. Demand can fall off quickly when conditions deteriorate, as we saw in the second half of 2022. Thus, I don’t believe the semiconductor industry is fully out of the woods yet in terms of this down-cycle.
At the current valuation, I don’t see a compelling risk/reward in 抖阴最新版 stock. Analysts are bullish, though, with the representing nearly 40% upside from current levels.
The Bottom Line
Given the uncertainties 抖阴最新版 faces in both the near-term and long-term, I believe the stock is fairly valued right now. While I’m positive about the company’s future prospects, the road ahead will not be an easy one. For those reasons, I rate 抖阴最新版 stock a hold. The bullish price targets are not going to change anything for me, yet.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
