Since offering a downbeat forecast early this month Advanced Micro Devices (NASDAQ:AMD) stock is down.
AMD has a market cap of $174 billion, about 7.3 times revenue. Nvidia’s (NASDAQ:NVDA) dominance in the cloud, it seems, leaves AMD with only leftovers.
Despite this, analysts like AMD stock almost as much as they do Nvidia, where sales last year were just 15% higher. The average analyst sees AMD stock gaining 34% over the next year, with some bumping up their price targets to $150.
The Bull Case for AMD Stock
Ever since it was competing only against Intel (NASDAQ:INTC) in PC chips a generation ago, AMD has maintained a reputation for having a wide product range and strategic pricing.
CEO Lisa Su has been the best successor possible to legendary AMD founder Jerry Sanders, who stepped down in 2004 but is still around at age 86.
The chip industry also enters a new product cycle next year, and AMD is already laying out its stall.
This starts with the RDNA 4, a graphics chip built on a 3 nanometer process that should provide gamers value against higher-priced products offered by Nvidia.
AMD profits have been hurt by competition in graphics cards this year, but the new line is expected to be competitive across a range of price points.
The gaming computer market, where graphics card competition began a decade ago, remains important, and it’s also more price sensitive than the cloud today.
In the cloud, AMD’s weakness against Nvidia may prove a strength, as it designs AI chips that can be exported to China, even under current export controls. AMD is also sampling AI chips analysts think will prove better than those of Intel.
Don’t feel sorry for Intel, however. Su now says AMD is willing to consider Intel foundries for its next generation of chips.
The Bear Case
The bear case against AMD stock starts with a name I’m familiar with, Grace Hopper. I interviewed the admiral herself when I was a young reporter, over 40 years ago. She was truly impressive. Her name lives on in a new Nvidia “superchip” now entering production.
The new chip integrates the Graphics Processing Units Nvidia is known for with the Central Processing Unit design Intel made its mark on. It’s expected to dominate the market for AI modeling in the cloud, even against designs built by the Cloud Czars themselves.
This would indeed leave AMD with leftovers in the cloud and an uninspiring client market, say bears. The threat of a recession in 2024 is also worrying some analysts. So is the stock’s relative over-performance in 2023. Despite trailing Nvidia in key markets, AMD is still up 64% this year.
The Bottom Line
AMD is going to grow about as fast as the markets it serves.
Those markets are PC computing, gaming, and artificial intelligence, which uses clients as well as servers.
If you believe as I do that AI will generate enormous amounts of productivity, thus economic growth, then you must be bullish on AMD stock.
This is doubly true because Lisa Su and her team have been in place for a decade now, and the company has proven it can take advantage of market opportunities.
The bear case is a macroeconomic one, an assumption that high interest rates will lead to a global recession, the idea being that AMD is more vulnerable to that than a market leader like Nvidia or Intel.
Personally, I spread my bets, as AMD does its product line. That means I hold positions in most of the leading semiconductor stocks. This includes AMD.
As of this writing, Dana Blankenhorn held LONG positions in AMD, NVDA, and INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.