Last year, artificial intelligence (AI), a new field of technology that has been gaining popularity in recent years, minted the first trillion-dollar company. Nvidia (NVDA -2.68%) Stocks soared by 239% thanks to the unprecedented demand for AI chips in data centers. Nvidia is still creating value and now has a market cap of $2.2 trillion. This makes it the third largest company in the entire world, behind Apple You can also find out more about the following: Microsoft.
This exclusive club of trillion-dollars is extremely rare. Amazon, Alphabet” Meta Platforms Being the sole member. Within the next 10 years, however, it is possible that another company will join.
Advanced Micro Devices (AMD -4.24%) It is a new competitor to Nvidia on the AI chip market. Investors who purchase the company’s stock now could enjoy a 270% gain if the company joins the trillion dollar club. This is why I believe it will.
AMD AI’s potential goes beyond the datacenter
AMD announced its MI300 data center chip lineup last year, designed for AI workloads. These chips are available in two different configurations. The MI300X, for example, is an AI-only chip. The MI300A is a GPU-CPU combination that rivals Nvidia H100.
AMD can grab market share if Nvidia cannot keep up. AMD informed investors that it would be working with Microsoft and other tech giants in the fourth quarter 2023. OracleMeta and MI300 GPUs deployed for Außerdem. Microsoft’s Azure cloud platform has begun offering private previews to customers of the MI300X. Developers can now access AI models such as OpenAI‘s GPT-4.
AMD estimates that the MI300 Series could generate $3.5 billion sales by 2024. This forecast has been revised up from just $2 billion three months ago, which shows how rapidly demand is growing. Nvidia AMD generated $47.5 billion dollars in revenue from data centers last year, mainly due to its H100. There is plenty of room left for AMD growth.
AMD has a huge opportunity to expand its AI business beyond the data centers. The company has already achieved a market share of 90% in AI chips, led by the Ryzen AI Series, which includes GPUs and neural processor units (NPUs). According to the company, millions of AI-enabled PCs from companies like Lenovo and HP have shipped with these chips. DellLenovo, Asus and HP Inc.
The processing of AI in the device results in faster performance for users, as workloads do not have to be transported to and from data centers. This allows advanced virtual assistants to create text, images and videos without a network connection. AMD’s client segment revenues soared 62% in Q4 over the previous year thanks to Ryzen AI chips. Investors should expect a similar growth rate for AMD Client Segment revenue during the first quarter of 2024.
AMD is poised to grow its revenue significantly
You can also find out more about the following: The following are some examples of a semiconductor The industry has a cyclical nature, so growth can be lumpy. The consumer doesn’t replace expensive items like smartphones and computers every year, so revenue growth can be erratic for AMD.
AMD, for example, saw its revenue soar by 44% to $23.6 Billion in 2022, yet it fell 4% from 2023 to $22.7 Billion, a decline of 4%. The high inflation rate and the rising interest rates did not help because it put additional pressure on consumers’ spending.
The same challenges apply to commercial spending in the datacenter. Nvidia’s Jensen Huang, the CEO of Nvidia, believes AI is going to change this in the short term. Tech giants such as Microsoft don’t normally upgrade their hardware each year. Huang says that $1 trillion of data centers infrastructure will need to be upgraded in four years, due to the demand for AI and accelerated computing. This could lead his company AMD and other tech giants like Nvidia into a growth phase.
Wall Street analysts predict that AMD will generate $25,8 billion dollars in revenue by 2024. This represents a growth rate of 14%. The analysts also forecast $32.5 billion revenue in 2025, representing a 26% growth. AMD’s recent increase in its MI300 forecast, coupled with the company’s soaring AI-enabled chip sales, could mean that the numbers Wall Street has predicted are blown out of the park.
AMD MI300 is only now starting to grow in sales. Nvidia has been able to consistently exceed expectations.
Source: Getty Images
AMD’s mathematical path to $1 trillion in valuation
AMD’s stock is valued at $270 Billion, and its revenue of $22.7 billion for 2023 makes it worth a Price to Sales (P/S), ratio Of 11.9. AMD would need to earn $84 billion annually to support a valuation of $1 trillion if the P/S remains unchanged.
If revenue grows by only 14% per year from now until 2034, the company will be there in a decade. AMD is likely to reach the threshold in the short term, based on Street forecasts of 2024-2025.
AMD has seen its revenue grow at an annual compound rate of 15,6% in the past 10 years, and this is without AI. This could be AMD’s biggest opportunity.
A multiple expansion could also be a possibility. Investors may be more willing to pay higher price-to-sales ratios for AMD stock if AMD’s revenues grow faster than expected. Nvidia StockFor example, trades with a P/S of 35.8 Triple-click to learn more Where AMD’s stock trades. This would speed up the path for AMD to reach a valuation of $1 trillion.
Investors who purchase AMD stock now could make a substantial profit when the company reaches the trillion dollar club.
Suzanne Frey is an Alphabet executive and a board member at The Motley Fool. John Mackey is a former CEO at Whole Foods Market (an Amazon subsidiary) and he’s a board member for The Motley Fool. Randi Zuckerberg is The Motley Fool’s Board of Directors. She was formerly the director of marketing and spokesperson for Facebook, and her sister, Meta Platforms CEO Mark Zuckerberg. Anthony Di Pizio The company has not taken any positions in the companies mentioned. The Motley Fool recommends and has positions in Advanced Micro Devices (AMD), Alphabet, Apple, HP Meta Platforms Microsoft Nvidia Oracle, Amazon and Apple. The Motley Fool suggests the following: long January 2020 $395 calls and short January 2020 $405 calls. The Motley Fool is a Disclosure policy.