Most investors in the technology sector have focused on trends and developments related to AI names, especially those in the semiconductor industry that is responsible for building the necessary infrastructure to allow these models to operate and grow from the data they are fed. My darling of the industry is found in Nvidia company Nasdaq: NVDABut there are signs that a new competitor may be knocking on the door of another massive rally.
While NVIDIA has dominated the AI and semiconductor space through 2024 and most of 2023, some might say it has risen too high with valuations reaching stratospheric highs. The future growth rates predicted by Wall Street analysts are not high enough to justify current valuations, let alone higher valuations. Knowing this, investors may look to other names in the space for a better risk-reward setup.
Today’s advanced micro-devices
Advanced micro devices
(As of 12/26/2024 at 05:45 PM ET)
- 52 week range
- $117.90
▼
$227.30
- P/E ratio
- 112.67
- Price target
- $191.96
This is exactly where shares are Advanced Micro Devices Inc. (NASDAQ: AMD, also known as AMD, plays a role.
Key valuation ratios, compared to industry peers, highlight how AMD offers one of the best setups for a potential buy.
Wall Street analysts agree, and even institutional investors find this reason enough to buy the stock before the new year.
What makes AMD stock better than its peers today?
There are two things that usually drive a stock’s price: interest in that stock from the broader market and earnings per share (EPS). With this basic set, investors can evaluate whether a stock is in favor with the market or not.
This is where price action becomes important. There is a huge gap between AMD shares, which are now trading at 55% of their 52-week highs, and NVIDIA shares, which still stand at 92% of their 52-week highs. It’s safe for investors to assume that NVIDIA has won the popularity contest in today’s market.
But what about tomorrow? This is where the fundamentals start to click, and AMD appears to have gathered enough evidence in this area to make it a better buy than NVIDIA today. Starting with Wall Street’s EPS forecast of $4.91 for the next 12 months, calling for a net jump of 48.3% from $3.31 per share today.
Compared to NVIDIA’s EPS forecast of $4.14 per share, which would increase core earnings by just 41.3%, AMD appears to have a better chance of capturing the market premium in this regard. However, growth rates below 10% are not reason enough to buy stocks; Evaluations need to be considered.
As for its forward price-to-earnings (P/E) ratio, which is how markets value today’s earnings over tomorrow’s earnings, AMD is trading at a valuation of 25.6x compared to NVIDIA’s multiple of 34.0x. This significant discount starts to make NVIDIA look a little more expensive, but the trend doesn’t end there.
When comparing the two on a price-to-book (P/B) basis, NVIDIA stock is trading at a whopping 51.4x multiple, while AMD stock is at just 3.9x today. Looking at it this way, investors can see how NVIDIA’s comparable EPS growth rates don’t really justify paying that much higher multiple.
Wall Street wants to close the gap
Given all these differences between AMD and industry leader NVIDIA, it has made some Wall Street analysts realize the potential for an easy win for their careers and reputations. Especially those at Citigroup, who, as of October 2024, put — and hold — a buy rating on AMD stock, this time with a price target of $200.
Advanced Micro Devices stock forecast today
$191.96
53.50% upModerate purchase
Based on 31 analyst ratings
| High expectations | $250.00 |
|---|---|
| Average expectations | $191.96 |
| Low expectations | $155.00 |
Advanced Micro Devices stock forecast details
For these views to be true, the stock would have to rise as much as 59% from where it trades today, let alone approach its 52-week highs. Despite the optimism of these forecasts, these analysts were not the only ones ready to announce their optimism.
State Street institutional buyers have decided, as of November 2024, to boost their holdings in AMD stock by 2.3%, bringing their net position to a high of $11.5 billion today, or 4.3% ownership in the company to give investors another bullish metric to rely on. .
Even the bears know better than to bet against this stock, as short interest in the company is down 8.8% over the past month, a sign of bearish capitulation facing all bullish factors in the market today.
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