Do AI chip stocks have more room to grow? Nvidia and AMD Spotlight –

 Do AI chip stocks have more room to grow?  Nvidia and AMD Spotlight -

Artificial intelligence (AI) and semiconductor chips have captured the collective imagination of investors, and for good reason. Together, they drive the technology of the future. Semiconductor chips are ubiquitous in our digital age, and in recent months artificial intelligence has begun to transform the way we communicate with our machines. The convergence of these two fields implies limitless possibilities.

For investors, this is particularly exciting. The Philadelphia Semiconductor Index, PHLX, which tracks the chip industry through the performance of the 30 largest semiconductor manufacturers, has gained about 39% so far this year.

The PHLX is active for good reason. Semiconductors have been around for decades and are found virtually everywhere in today’s digital world, but combined with artificial intelligence, they will drive the technology of tomorrow. Investors understood this and made chip makers the benchmark for AI stocks.

The question now is, how much more room do AI chip stocks need to grow? We can consult with Streets analysts, many top equity professionals have evaluated AI and semiconductors, and their comments can shed more light on the industry. Let’s take a look at what they have to say and which AI-related chip giants they’re recommending.

Nvidia company (NVDA)

The first is Nvidia, a major name in the semiconductor industry, the eighth largest chip maker by revenue. Nvidia is a leading manufacturer of graphics processing units (GPUs) and has built its reputation on these high-end chips. The chips are capable of handling the computing power demands of various high-end and compute-intensive applications, including professional graphic design, high-end gaming, and artificial intelligence. Demand for Nvidias GPUs, especially in the latter application, has fueled the stock’s strong gains this year; Since the beginning of the year, NVDA shares are up about 190%.

Recent data shows that Nvidia’s performance stands tall on its AI products. OpenAI, the company that launched ChatGPT, has been using Nvidias GPUs since 2020 to train its AI units totaling 20,000 chips. Looking forward, OpenAI has indicated that it may need another 10,000 chips to maintain ChatGPT efficiency.

This is a strong foundation for Nvidia’s success, and the company’s strong position can be seen in the strong momentum it has posted in its recent first quarter financial results. This report showed a top total revenue of $7.19 billion. While that was down 13% from a year earlier, it beat forecasts by a whopping $670 million. The underlying figure, non-GAAP EPS of $1.09, was 17 cents per share better than expected.

Better still, from an investor perspective, was the guidance from Nvidia. The company forecasts sales of $11 billion for the fiscal second quarter, a massive increase from its previous forecast of $7.2 billion. Achieving this goal will result in a 41% year-over-year increase in quarterly revenue.

This company’s strength in AI forms the basis for the optimistic comments from Morgan Stanley 5-star analyst Joseph Moore, who writes: Peer has indeed shrunk significantly… Still, we see continued growth in the business of NVDA data centers, in a multi-year trajectory that should be clearly ahead of all other composite-based computing players, given that there is no offsetting or cannibalized computing business outside the AI ​​business.

As a result,” the analyst added, “we see NVDA as the cleanest story in AI hardware and believe it continues to deserve more consideration from investors seeking AI exposure, even as the current valuation construct and YTD stock returns already reflect expectations that they are higher than secondary or tertiary players.

To that end, Moore gives NVDA an Overweight (aka Buy) rating, which he promoted as his top pick. According to Moore, NVDA will hit $500 by next year, which implies an 18.5% gain from current levels. (To look at Moore’s track record, Click here)

Overall, Nvidia earns a Wall Street Analyst Consensus Strong Buy rating, based on 33 recent reviews that boil down to 30 Buys versus just 3 Holds. The shares are trading at $422.09 and the average price target of $464.85 suggests a modest 10% upside over the next 12 months. (See NVDA Stock Forecasts)

Advanced Micro Devices (AMD)

AMD is a perennial top-ten chipmaker by sales and reported total revenue of $23.06 billion over the past four quarters (2Q22 to 1Q23). The company boasts a market capitalization of $188 billion and has a broad portfolio in the AI ​​ecosystem, including high-performance chips and architecture.

AMD’s AI exhibit includes its Instinct GPU accelerators, Alveo Adaptive accelerators, and EPYC server processors, as well as several chip lines, including its Ryzen AI mobile processors and Versal AI core adaptive SoCs. AMD’s AI chips and accelerators are found in a wide range of applications, from games to data centers to supercomputers, and provide the processing speed and capacity needed for generative AI.

By the numbers, the company’s recent performance has been better than expected. In the first quarter of this year, AMD reported total revenues of $5.35 billion. While it was down about 9% year over year, it exceeded forecasts by $40 million. The company’s non-GAAP bottom line EPS of 60 cents a share also beat forecasts, by 4 cents over estimates. On the negative side, the company’s second-quarter revenue forecast of $5.3 billion was considered weak and fell short of expectations by $5.52 billion.

The company’s AI portfolio provides important support for the company. AMD is shifting its strategic focus to the emerging AI market and is investing heavily in both network and data center AI operations. Coming to the specifics, AMD’s new Ryzen 7000 series includes AI computing capabilities, and the MI300 chips are designed for both high-performance computing and AI applications. The latter track will find support from the rapidly growing field of generative AI.

These are the key points behind Baird analyst Tristan Gerras’ comments on AMD. Gerra, who holds a 5-star rating from TipRanks, says of the company: Mi300x claims best-in-class TCO performance for inference applications, and management reiterated its expectations for significant AI revenue starting in 4Q23 based on more hyperscaler engagements. AMD sees a >50% CAGR for data center AI acceleration by 2027, up to a TAM of more than $150 billion. While its ecosystem isn’t as mature as Nvidia, AMD is well positioned to be a key beneficiary of AI’s secular growth trends over the medium term, in our view.

Based on the above, Gerra sets an Outperform (aka Buy) rating on AMD stock and assigns the stock a price target of $170 to imply an upside potential of 54.5% over the 12-month horizon. (To look at Gerras’ track record, Click here)

Overall, Street gives AMD a Moderate Buy Consensus rating, based on 29 recent analyst reviews that include 21 buys and 8 hold(s). The stock’s current trading price is $110.01, and its average price target of $134.31 suggests it will be up 22% in the year ahead. (See AMD Stock Predictions)

To find good ideas for trading stocks at attractive valuations, visit TipRanks Best Stocks to Buy, a tool that combines all stock information from TipRanks.

Disclaimer: The views expressed in this article are solely those of the analysts featured. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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