I'm Steering Clear of This Artificial Intelligence (AI) Chip Company's Shares at a 10-Meter Distance in 2024
The fervor surrounding artificial intelligence (AI) has thrust chipmakers into the spotlight, with companies like Nvidia and Advanced Micro Devices (AMD) at the forefront. These tech titans develop the hardware vital for AI's operation, positioning them to reap significant rewards as the market expands.
Nvidia, the reigning champ with a 3.23% surge, has demonstrated the potential of AI chip companies via a staggering 674% increase in stock value since January 2023 and skyrocketing earnings. AMD, boasting a 2.61% rise, has gained favor with investors thanks to its second-largest stake in GPU market share and prominent role in chip designs.
However, AMD's situation raises reluctance in some investors. Its stock price, priced at 206 times its earnings, outpaces its financial growth, while Nvidia's AI dominance and competitors' potential threat create challenges for the chipmaker.
Why then, might I refrain from engaging with this AI chip stock in 2024?
Niche Less Firmly Embraced by AMD
AMD has managed to position itself more competitively in the AI landscape since 2023, releasing new AI-capable chips and attracting big names like Microsoft and Meta Platforms. Still, the market's intensifying competition means that AMD must find and monopolize a unique niche to make substantial strides long-term.
Nvidia, with over 85% control of the AI GPU market, exerts considerable influence. Intel maintains a tenuous standing but is investing heavily in manufacturing capacity to stake its claim as the world's most significant AI chip manufacturer.
Meanwhile, AMD is largely stuck between these giants, yet to unearth a decisive edge that separates it from them.
Leaner Financial Resources
Nvidia's early advantage in AI has granted it a considerable financial boost, bolstering its ability to reinvest in its business. AMD's dip in earnings, however, has narrowed that gap, making it more difficult for the company to compete financially in the AI sphere.
Recent performance indicators, such as AMD's free cash flow, quarterly revenue, and operating income, take a substantial hit compared to Nvidia's growth. Packing a far less impressive financial punch, AMD may find it challenging to maintain ground against Nvidia in the AI race.
Value-Lacking Stock
Although AMD's stock price has experienced significant growth, its P/E ratio surpasses many tech giants, including AI leaders, suggesting that investors may not be getting optimal value. Despite its shortcomings, it is essential to remember that the company has witnessed impressive growth in its AI-focused division.
However, dwindling performance in other sectors means that overall revenue growth remains muted, while Nvidia's impressive revenue surge highlights the gap between the competitors.
Both companies have experienced fluctuations in their market shares, with AMD's drifting downward and Nvidia surging upward. The consequences of slowed growth in gaming revenue have further penalized AMD, allowing Nvidia to seize a more substantial lead.
With these challenges in mind, it is likely best to avoid AMD's AI chip stock in 2024, favoring a competitor with a more stable foundation.
Despite AMD's efforts to increase its presence in the AI landscape and attract prominent partners, its financial resources are currently leaner compared to Nvidia's, making it harder to compete financially in the AI sector. Furthermore, AMD's stock's high P/E ratio may not provide optimal value for investors, especially considering its fluctuations in market shares and gaming revenue, suggesting it might be wiser to consider a more stable competitor in the AI chip market in 2024.
%20Chip%20Company's%20Shares%20at%20a%2010-Meter%20Distance%20in%202024){kind=link}