Showdown: Advanced Micro Devices
In the realm of artificial intelligence (AI) stocks, Advanced Micro Devices (AMD) proves itself a force to be reckoned with. The company is poised to reap substantial benefits from the burgeoning AI chip market. Last year, AMD’s data center division witnessed a modest 7% revenue increase, hitting $6.5 billion. However, in 2024, a robust surge is expected, especially in the AI graphics processing unit (GPU) segment, potentially generating a whopping $3.5 billion in revenue this year.
The kickoff of AMD’s latest AI accelerators in Q4 of 2023 saw over $400 million in data center GPU sales. The company is on track for substantial growth in data center GPU revenue this year. Further, AMD’s client processor business is set to ride the AI wave, powering over 90% of AI-driven personal computers with its cutting-edge Ryzen central processing units (CPUs).
AMD is projecting significant growth in the AI PC segment, with the market expected to skyrocket from 50 million units in 2024 to over 167 million units in 2027, contributing to an estimated 60% share of global PC shipments in the next five years.
Anticipated increases in AMD’s bottom line from a prior year slump of 24% to $2.65 per share signify a promising trajectory for the company moving forward.
AMD EPS Estimates for Current Fiscal Year data by YCharts
Broadcom in the Arena
Broadcom commands a leading position in custom chips, equipping it for a substantial presence in the AI semiconductor sphere. The company’s recent fiscal report for the first quarter of 2024 (ending Feb. 4, 2024) highlighted a fourfold surge in revenue from AI chip sales, reaching $2.3 billion.
Projections indicate that Broadcom is set to rake in $10 billion from AI chip sales this year, with AI expected to contribute 20% of its total revenue for the fiscal year. While AI custom processors are anticipated to be a significant revenue stream, challenges loom in other semiconductor niches for Broadcom, with declines reported in broadband, wireless, industrial, and server storage markets last quarter.
Despite the upbeat AI chip sales, Broadcom’s failure to up its full-year guidance post-earnings led to a stock dip. This hints at the AI segment not providing a significant uplift to the overall business. With an estimated 14% earnings growth over five years, Broadcom trails AMD’s projected annual growth rate of 25% over the same period.
The Verdict
Comparing AMD and Broadcom as AI stock contenders reveals intriguing insights into their financial health and growth potential. While Broadcom faces challenges in certain semiconductor segments, AMD thrives in multiple AI avenues. Valuation-wise, both companies sport similar price-to-sales ratios at around 14, yet AMD boasts a markedly higher trailing earnings multiple compared to Broadcom. However, forward earnings multiples narrow the gap, reflecting AMD’s projected faster bottom-line growth.
Furthermore, AMD’s lower price/earnings-to-growth (PEG) ratio compared to Broadcom’s suggests undervaluation, indicating a potential investment edge for the former. Despite Broadcom’s anticipated superior AI revenue this year, AMD’s multi-faceted approach to the AI market positions it favorably against potential competition like Nvidia in custom AI chips.
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Harsh Chauhan holds no positions in the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool maintains a disclosure policy.
The author’s views and opinions expressed herein do not necessarily align with those of Nasdaq, Inc.
