Chipmaker Advanced Micro Devices is the IBD Stock of the Day as investors take in the latest artificial intelligence news. Growth for AMD stock is coming from the data center market, where it has gained share vs. Intel in recent years and where Nvidia is now the leader in AI chips.
On the stock market today, AMD stock jumped 9.1% to close at 192.50, breaking out of a short consolidation that was one day away from becoming a flat base with a 184.92 buy point. The chipmaker was featured as the IBD Stock of the Day on Wednesday.
As of Wednesday's market close, AMD stock had gained 17% in 2024, despite a sell-off following its fourth-quarter earnings report. Shares in the chipmaker have advanced 122% over the past year amid buzz over generative AI technology.
AMD stock recently bounced off its 50-day moving average following Nvidia's earnings report. Another plus: AMD has been finding support at or above its 21-day exponential moving average.
In 2024, AMD is ramping up production of its MI300 AI chip as internet companies upgrade data centers for processing AI applications and workloads. Rival Nvidia will host its GTC conference on March 18. At the event, Nvidia is expected to provide fresh details on its roadmap for new AI accelerator chips.
For its part, AMD also has a more powerful MI400 AI chip in testing.
AMD Stock: Data Center Growth
The big picture: By the end of 2024, data center products will account for 50% of AMD revenue, up from 10% to 15% five years ago, notes a Bank of America report.
The lion's share of AMD data center sales come from replacing Intel devices in computer servers. AI chips could garner $3.5 billion in 2024 sales, AMD has told analysts.
Still, analysts estimate that Nvidia holds about 80% of the AI chip market. Most of Nvidia's AI chips are used to train AI models. OpenAI, Alphabet's Google, Meta Platforms and many others are racing to build AI models for consumer and enterprise applications.
Generative AI can create text, images, sounds and video.
Large language models understand the way that humans write and speak. They allow users to interact with AI systems without the need to understand or write algorithms.
How AI Training Models Work
The models process "prompts," such as internet search queries, that describe what a user wants to get. LLMs require training data for specific tasks. They're made of artificial neural networks — or mathematical models that imitate the human brain — that generate outputs from the training data.
What sets startup OpenAI's ChatGPT, Google's Gemini and other large language models apart is the size of data sets, called parameters, used to train the LLMs. The more data a large language model is trained upon, the more powerful its capabilities can become.
While AMD is designing chips for training AI models on supercomputers, it's bigger opportunity lies in the "inferencing" market.
Inferencing boils down to running AI workloads in data centers but also processing AI apps on mobile phones, PCs and other devices. Inferencing involves making predictions based on live data to produce actionable results.
Slowing Growth In Gaming, Embedded Systems
For investors, the main issue these days is how to rank the AI opportunity for companies like AMD vs. their legacy businesses, where growth may be slowing.
In Q4, Santa Clara, Calif.-based AMD earned an adjusted 77 cents a share on sales of $6.17 billion in the December quarter. Analysts polled by FactSet had expected AMD earnings of 77 cents a share on sales of $6.13 billion. On a year-over-year basis, AMD earnings climbed 12% while sales increased 10%.
For the current first quarter of 2024, AMD predicted sales of $5.4 billion. However, analysts had been modeling $5.73 billion in sales for the first quarter.
Weakness in AMD's PC gaming business and the "embedded" market accounted for the disappointing results. AMD's embedded chips are built into networking/storage systems, digital signage, medical imaging, automotive systems and industrial control systems.
AMD Stock: Technical Ratings
AMD stock holds a best-possible IBD Composite Rating of 99, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Further, AMD stock has an Accumulation/Distribution Rating of B. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on a scale of A+ to E, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
