Advanced Micro Devices Inc. (NASDAQ:AMD) is poised for its strongest week since November, surpassing even AI darling Nvidia Corp., as renewed optimism surrounds the growth prospects of the semiconductor industry.
Closing at a record high on Thursday, AMD shares continued their ascent in early trading on Friday, marking an approximately 65% surge since October. This impressive performance outpaces both Nvidia and the Philadelphia Semiconductor Index during the same period. AMD’s surge of around 12% this week surpasses Nvidia’s nearly 6% leap. Nvidia, too, has been climbing and set an all-time high on Thursday.
Investors are expressing confidence in the significant growth potential of chips and anticipate that Nvidia won’t be the exclusive beneficiary of this trend, according to David Wagner, a portfolio manager at Aptus Capital Advisors. He notes that investors are seeking a catch-up trade after Nvidia’s remarkable performance in the past year.
The semiconductor sector received a boost on Thursday from Taiwan Semiconductor Manufacturing Co.’s better-than-expected fourth-quarter results. As the main chipmaker for Apple Inc. and Nvidia, TSMC forecasted revenue growth of at least 20% for the year, contributing to the overall optimism around chip-related stocks.
AMD’s shares received an early-week lift as several analyst firms, including Barclays Plc, Susquehanna Financial, and TD Cowen, raised their price targets. Barclays, with the highest target at $200 per share, cited the potential for artificial intelligence as a driving force.
Despite the bullish sentiment, there are potential risks ahead. The average 12-month price target of around $150 implies a drop of about 9%, indicating that the street may be struggling to keep up with the stock’s rapid ascent. Analysts can be slow to update target prices and ratings, and upcoming earnings reports from both AMD (Jan. 30) and Nvidia (late February) will provide insights into their growth outlook.
Nvidia’s booming revenue growth has contributed to its favorable valuation, trading at about 28 times forward earnings compared to the semiconductor share benchmark at about 23. In contrast, AMD trades at a multiple of over 40.
Alec Young, chief investment strategist at MAPsignals, cautions that these stocks are fully valued, especially AMD, emphasizing that the company has more to prove as earnings haven’t materialized yet. He suggests that investors may want to buy on any weakness but advises against chasing the current high prices.
Despite the potential challenges, the strength in the semiconductor sector at the beginning of the year indicates that the enthusiasm surrounding AI, which propelled chipmaker shares and the tech sector in 2023, remains intact. Will Rhind, CEO of GraniteShares, notes that this reinforces the narrative that AI has substantial room for growth beyond a few companies.
Featured Image: Unsplash
Author Faith Yakubu 
