So far, Nvidia (NASDAQ: NVDA) has been the dominating force in the AI chips market, leaving competitors like AMD (NASDAQ: AMD) and Intel (NASDAQ: INTC) in its wake. However, things could change for the better for AMD and AMD stock, according to an analyst at Melius Research, but he thinks that the chances are less good for Intel.
Melius analyst Ben Reitzes showcased his bull case for AMD in a recent research note, ending it with a “Buy” rating on the stock and a $210 price target, which implies an upside of around 25% from where AMD stock is currently trading.
Melius’ Outlook for AMD Stock
In his new research note, Melius analyst Ben Reitzes said he thinks that AMD could be one of the beneficiaries of a catch-up trade coming out of the second quarter. He thinks that investors should be giving AMD more credit than they are currently, noting that there wasn’t “much love” for AMD after Lisa Su’s Computex keynote, perhaps because Nvidia rented out a 7,000-person venue the night before and stole her thunder. He then adds that investors should keep in mind that AMD doesn’t need to be Nvidia, as it’s only 9% of Nvidia’s market cap. Reitzes also notes that while it’s true that the smaller company has underperformed Nvidia by 131 points year to date, it has EPS power that could top $8 within a few years.
Reitzes pointed to a couple of factors which should benefit AMD, including that the world’s most valuable company, Microsoft (NASDAQ: MSFT), had endorsed the benefits of its AI chips on a total cost of ownership basis, which is the cost when taking into account indirect factors such as power and cooling demands, an area that Nvidia is known for bragging about. He also thinks that other potential positives for AMD include more orders from the tech giant Meta (NASDAQ: META) becoming evident in the second half of 2024, as Mark Zuckerberg’s company actually endorsed the benefits of total cost of ownership for AMD’s MI300X AI accelerator, which went unnoticed by many.
Reitzes also likes the specifications for AMD’s Strix Point AI PC processors, which he called impressive and could be driving upside as soon as Q3 of this year. Plus, he got an upbeat sense from management in recent meetings he had with them. It’s worth noting that the analyst also has a “Buy” rating on NVDA stock, and his last price target for it was $1,250. However, it’s a different story when it comes to Intel, according to the analyst.
Intel Should Leave AI to Nvidia & AMD
Reitzes thinks that Intel’s plan to make a huge investment in chip-manufacturing capacity muddies the waters for the stock. He wrote that not only is the Intel foundry story too complicated for the average investor, but the fact that you could just buy Nvidia and AMD, companies with AI narratives and very little capital intensity, just adds to the pain.
Finally, he adds that Intel now primarily needs to demonstrate that its gross margins have bottomed, and that it can benefit from an uptick in the PCs and servers markets. Basically, he’s saying that Intel should leave the AI chip success to Nvidia and AMD.
AMD Stock Forecast
Shares of AMD stock have risen by more than 4,000% since 2014, with the last decade likely the most crucial period in its 55-year history. This is because CEO Lisa Su took the helm 10 years ago and pulled the company back from the brink of bankruptcy. Then, she led it to an impressive recovery. During that period, AMD’s annual revenue rose by 312% while operating income climbed by 169%.
Much of its growth is owed to the launch of its line of Ryzen CPUs in 2017, and those powerful chips allowed AMD to consistently take market share from Intel. To put that into perspective, you should know that AMD’s CPU market share rose from 18% in the first quarter of 2017 to about 33% today. Meanwhile, Intel’s fell from 82% to 64%.
Additionally, AMD’s CPU success helped the company gain the necessary funds to expand into other sectors, including the AI sector. Over the last year, the company has released new AI GPUs to profit from soaring demand for AI chips. Additionally, AMD is gradually expanding into the AI-capable PC market. According to a forecast from Canalys, AI-capable PCs will represent about 18% of all PC shipments this year, and that share is projected to more than double to 40% in 2025.
With solid positions in multiple areas of tech, AMD is on a promising growth trajectory, and the vast potential of AI and other industries will likely keep AMD stock rising for years, making AMD an attractive long-term investment to buy right now.
NVDA Stock Forecast
Nvidia, on the other hand, is seen by many as a no brainer AI stock to buy. Shares of the GPU company have skyrocketed over 200% over the past year, and have delivered a jaw-dropping gain of more than 24x over the last 10 years. Not only that, but Nvidia is the fastest-rising member of the Magnificent Seven.
Despite the massive growth it has seen, what Nvidia has done in the past isn’t as important as what it could do in the future. The company’s amazing growth story isn’t going to end anytime soon, as many tech companies continue to buy Nvidia’s AI chips as fast as they can get their hands on them. The company plans to launch its new Blackwell GPU platform later this year, which will be the world’s most powerful AI architecture ever.
Unsurprisingly, the demand for Blackwell already outstrips the anticipated supply, according to CEO Jensen Huang. While NVDA stock might seem expensive to some investors, many have said that about the stock since the very beginnings of the AI boom, and it kept skyrocketing and proving them wrong. Therefore, Nvidia is likely poised to continue delivering stunningly strong growth, and investors who want to capitalize on that shouldn’t waste another minute and go ahead and buy more Nvidia shares.
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