/AI%20(artificial%20intelligence)/AI%20technology%20-%20by%20Wanan%20Yossingkum%20via%20iStock.jpg)
Artificial intelligence (AI) has become a driving force of innovation and investment, reshaping industries and redefining growth strategies. In 2024, AI stocks dominated Wall Street, delivering stellar returns as companies embraced its transformative potential. Analysts suggest this momentum could persist into 2025, making AI a key focus for forward-looking investors.
Meanwhile, Goldman Sachs predicts a tempered pace for the broader S&P 500 Index ($SPX) this year. While the index is expected to notch its third consecutive year of gains, rising to 6,500 by year-end 2025, the forecasted 9% price gain and 10% total return, including dividends, mark a slowdown compared to 2024’s exceptional 25% return.
For those seeking higher upside, Advanced Micro Devices (AMD) and Synopsys (SNPS) could be wise portfolio additions. Despite a lackluster 2024, these AI-driven leaders in semiconductors and software are tipped by analysts for significant growth. Investors eyeing outperformance may find these stocks worth considering as AI continues to shape the market.
AI Stock #1: Advanced Micro Devices
In the late 1960s, when computing power was measured in rooms rather than chips, Advanced Micro Devices (AMD) planted its roots in the nascent Silicon Valley. Founded in 1969, this Santa Clara-based firm emerged as a trailblazer in semiconductors, crafting CPUs and GPUs that powered early computing revolutions. In recent years, however, it has been overshadowed by Nvidia (NVDA).
With a market capitalization of $210.2 billion, AMD continues to challenge the status quo, driving innovation through its Ryzen processors and Radeon GPUs. Its presence spans data centers, gaming, and personal computing.
AMD stock has tumbled 44% from its 52-week high of $227.30 that it set in March 2024, lagging the broader market. Shares have dipped 8.1% over the past 52 weeks compared to the S&P 500's 25.8% return.
Yet, January has sparked hope, with AMD gaining over 5.4%, hinting at a potential rebound as the company eyes a fresh start in the new year.
AMD, trading at 29.08 times forward adjusted earnings and 8.72 times sales, offers a rare discount to peers like Nvidia and its own historical averages. For investors seeking AI and data center growth, its current valuation presents an enticing entry point into this high-potential market.
AMD’s third-quarter results dazzled on paper but left investors uneasy, as shares tumbled 10.6% post-earnings due to weak forward guidance. The company reported $6.82 billion in net sales, up 17.6% year-over-year, with a non-GAAP net profit of $1.5 billion, or $0.92 per share - up 33.3% annually.
The standout performer was the data center segment, raking in $3.5 billion, a staggering 122% surge driven by booming demand for EPYC CPUs, now powering giants like Netflix (NFLX), Microsoft (MSFT) Office 365, and Meta’s (META) Facebook.
CEO Dr. Lisa Su highlighted "insatiable demand for more compute" as a key driver for future growth across AMD’s data center, client, and embedded businesses. However, Q4 guidance tempered optimism, with a revenue target of $7.5 billion at the midpoint - $500 million below analyst expectations. Despite this, the outlook for data center GPUs brightened, with revenue projections now exceeding $5 billion, up from $4.5 billion previously forecasted.
Analysts tracking AMD anticipate the Q4 bottom line to grow to reach $0.88 per share, up 49.2% year-over-year. The company’s GAAP profit is expected to reach $2.54 per share in fiscal 2024, up 27.6% year-over-year, and rise another 63.4% to $4.15 per share in fiscal 2025.
Despite the decline, AMD’s allure as a top pick continues to shine in the eyes of investors, remaining a darling among analysts. Of the 38 analysts covering AMD, 30 suggest a “Strong Buy,” one advises a “Moderate Buy,” and the remaining seven back a “Hold” rating.
The average analyst price target of $188.36 indicates potential upside of nearly 47.9% from the current price levels. The Street-high price target of $250 suggests that AMD stock could rally as much as 96.3% from here.
AI Stock #2: Synopsys
Synopsys, Inc. (SNPS), boasting a $77.45 billion market cap, crafts essential software tools and technologies for designing and testing cutting-edge computer chips. Headquartered in Sunnyvale, California, Synopsys powers the semiconductor world. As AI and hyperscale data centers advance, chipmakers increasingly depend on its tools for precision and performance.
Synopsys has faced a tough road over the past year, unable to break through its February high of $629.38 and currently sitting 22.5% below that peak. While the stock showed a slight uptick over the past 52 weeks, SNPS slipped 21.5% in the past six months. The real jolt came after its fiscal Q4 earnings, when weak guidance sent SNPS plunging over 12%, leaving investors wondering what’s next for the tech giant.
SNPS wears a premium price tag, trading at 46.44 times forward adjusted earnings and 12.45 times sales. These lofty valuations signal Wall Street’s high hopes for the company’s above-average growth trajectory, betting on its ability to outperform.
Synopsys delivered its Q4 earnings results on Dec. 4, generating a record quarterly revenue of $1.64 billion, up approximately 11% year-over-year, exceeding the midpoint of its own guidance and also matching Wall Street's projections. Its non-GAAP EPS rose about 13% annually to $3.40, also beating estimates.
Its Electronic Design Automation (EDA) segment, making up 65.6% of total revenues, amounted to $1.07 billion, up 15.2%, while Design IP revenues, comprising 31.7%, came to around $517.8 million.
Plus, Synopsys exited fiscal 2024 more than doubling its cash reserves to $4.05 billion from $1.6 billion last year, while trimming long-term debt to $15.6 million. Operating cash flow hit $1.41 billion for fiscal 2024, reinforcing its robust financial health.
Despite delivering solid performance, Synopsys could not dodge investor disappointment as its Q1 and fiscal 2025 revenue guidance fell below expectations. For fiscal Q1 2025, the company projects revenues between $1.435 billion and $1.465 billion, while non-GAAP EPS is forecast to be between $2.77 and $2.82.
The fiscal 2025 outlook isn’t much brighter, with management anticipating revenues between $6.745 billion and $6.805 billion. Non-GAAP EPS is forecast at $14.88 to $14.96, not enough to ignite market enthusiasm.
Analysts tracking Synopsys predict EPS of $10.40 in fiscal 2025, up 1.5% annually, with the bottom line projected to rise another 26.7% to $13.18 in fiscal 2026.
Wall Street’s confidence in SNPS is evident, as the stock has a solid “Strong Buy” rating overall. Among the 17 analysts covering the stock, 14 are highly bullish with a “Strong Buy,” one advises a “Moderate Buy,” and the remaining two have a “Hold.”
The average analyst price target of $647.88 indicates potential upside of 32.9% from the current price levels. However, the Street-high target of $699 suggests that the stock could surge as much as 43.3%.
