News

Advanced Micro Devices (NASDAQ: AMD) has become a favorite on Wall Street over the last year alongside a boom in artificial intelligence (AI). Hardware companies have enjoyed substantially more growth than those focused on software, with chipmakers responsible for a significant portion of the Nasdaq-100 technology sector's 43% rise since last April.

However, chip stocks like AMD remain a smart long-term hold. These companies are developing the hardware that makes most tech possible, with demand likely to continue rising for the foreseeable future. AI is only one market requiring high-powered chips, with AMD also benefiting from chip demand from video games, automotive, cloud computing, and more.

AMD has made many millionaires over the years, with its shares up 3,500% since 2014. However, the company is on a promising growth path, continuing to benefit from tailwinds across tech.

So, does AMD's stock still have the power to help you become a millionaire? Let's assess.

AMD might not take down Nvidia, but it probably doesn't need to

AMD has been closely compared to Nvidia for years, as both are leading chipmakers and are active in similar segments. However, a boom in AI kicked this up a notch.

Nvidia's years of dominance in graphics processing units (GPUs), the chips necessary to build AI models, saw its business explode. Nvidia's share price and earnings hit record heights last year, with AMD left playing catch up. While AMD's stock has enjoyed some sympathy growth from Nvidia's success, it also highlighted how far behind AMD had fallen in AI.

As a result, all eyes have been on AMD's expansion in AI this year, with some experts asking whether AMD will be able to dethrone Nvidia in the coming years. However, the massive potential of AI and AMD's past suggests it won't need to overtake Nvidia to deliver major gains for investors.

Data from Grand View Research shows the AI market reached nearly $200 billion last year and will expand at a compound growth rate of 37% until at least 2030. This trajectory would see the industry hit nearly $2 trillion by the end of the decade, suggesting there's room for Nvidia to retain its dominance and welcome competitors like AMD.

Moreover, AMD is no stranger to being second. Since at least 2017, AMD's bread and butter has been its central processing unit (CPU) business, expanding its market share from 18% to 36% in 2024. Yet, this figure is still second to Intel's 63% market share in CPUs.

However, AMD's position behind Intel in the industry hasn't stopped AMD's annual revenue from rising 237% over the last five years, while its free cash flow has soared 206% to over $1 billion. Meanwhile, the AI market will likely have much more to offer than CPUs in the coming years.

As a result, it's promising that AMD has launched new AI GPUs to compete with Nvidia's offerings and is also investing heavily in AI-enabled personal computers.

Potentially more room to run than Nvidia over the long term

In the last 12 months, Nvidia's soaring stock price has seen its market cap reach nearly $2 trillion, making it the world's third-most valuable company (after only Microsoft and Apple). While AMD's market cap has seen significant growth in the same period, it still sits at a far lower $240 billion, indicating it has more room to expand over the next decade.

AMD's business is in a completely different league from Nvidia's, which could make now the best time to buy AMD's stock before it's too late.

This chart shows that AMD's earnings are projected to reach $7 per share over the next two fiscal years, while Nvidia's will rise to $36 per share. If you multiply these figures by the companies' forward price-to-earnings ratios (AMD's 41 and Nvidia's 31), you get stock prices of $287 for AMD and $1,116 for Nvidia. These price targets would see AMD's stock rise 93% by fiscal 2026, with Nvidia's shares increasing 40%.

Now, it's important to take these figures with a pinch of salt as these projections are based entirely on analysts' expectations, which can easily be wrong. However, the figures still suggests that AMD has significantly more growth potential than Nvidia in the coming years. The company is at an earlier stage in its AI journey and in the chip market in general, which could make now the best time to buy.

So, if you're willing to hold for the long term, AMD likely has the power to make you a millionaire with the right investment. The company has vast growth potential and will likely benefit from the tailwinds of tech for years.

Should you invest $1,000 in Advanced Micro Devices right now?

Before you buy stock in Advanced Micro Devices, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Advanced Micro Devices wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

*Stock Advisor returns as of April 22, 2024

Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.