Are you looking to turn a little bit of money now into a whole lot of money later? Investing in the right stocks offers one way to do just that. The question is, which stocks?
Some veteran investors will advise you to start by focusing on companies that are leaders in their respective industries. This advice presents something of a conundrum, however, for anyone familiar with the technology sector's most prolific companies. Many of those stocks are expensive and their growth prospects can be somewhat limited by their already large sizes. How do you grow something that is already huge?
Advanced Micro Devices (AMD 1.23%) is not the leader of either the computer processor market or the graphics processor market. Yet, the company and its stock are both performing incredibly well. Will this growth persist long enough to turn a $50,000 investment in AMD into a seven-figure stash at any point in your lifetime? Keep reading.
2 reasons for Advanced Micro Devices' unlikely success
It's true. Advanced Micro Devices isn't the dominant name in any market. Nvidia (NVDA -1.91%) is leaps and bounds ahead of it in terms of graphics processing and data center processors (and artificial intelligence hardware in particular), and despite all of its recent challenges, Intel (INTC 0.16%) is still the big name in ordinary computer processors. Market research outfit Canalys reports that Intel controls nearly 80% of the CPU market. This leading market share isn't a mere matter of luck, either.
But Advanced Micro Devices is doing something right. Its revenue is projected to swell another 13% this year before accelerating to a growth rate of 28% next year, with a similar double-digit pace likely at least for the next several years beyond that. Earnings are expected to improve accordingly.
Data source: StockAnalysis.com. Chart by author.
What gives? How is this perpetually in-second-place company able to grow so well when bigger and better-established brands are out there?
There are two related explanations. The first is simply that technology and intellectual property are great equalizers. Take Alphabet's Google as an example. It wasn't the world's first search engine. It became the world's most prolific search tool largely because its search algorithm delivered more meaningful, relevant results to its users. Advanced Micro Devices may never be the world's biggest processor manufacturer, but its technology and IP do allow it to make lots and lots of lower-cost processors that are perfectly fine for their intended applications.
The second reason AMD is able to defy the odds and continue growing? There's more than enough business to go around.
The advent of artificial intelligence (AI) is an obvious opportunity in and of itself. CEO Lisa Su believes that by 2027, the world will be willing to spend as much as $400 billion per year on AI accelerator tech. For perspective, Advanced Micro Devices did roughly $23 billion worth of business last year.
It's not just artificial intelligence-oriented data centers, though. AI's rise is driving demand for higher-performance computers as well. As Su explained during January's earnings call: "Millions of AI PCs powered by Ryzen processors have shipped to date and Ryzen CPUs power more than 90% of AI-enabled PCs currently in market."
Mega-winner or not, AMD is displacing competition
The question remains, however: Is AMD a millionaire-making kind of stock if you're starting out with a considerably smaller sum of $50,000?
Never say never, but probably not.
Don't panic if you've already stepped into a stake in Advanced Micro Devices with high hopes! You'll be fine. Growing $50,000 into $1 million translates into a hefty 2,000% return on your investment. It's a 20-bagger trade after the underlying opportunity driving such a gain has been recognized and priced in. That's a tall order to be sure, and would likely take a lifetime to deliver from here. For perspective, the S&P 500 only averages an annual gain of around 10%.
However, just because AMD isn't a millionaire-making kind of ticker anymore doesn't mean it's not one of the semiconductor industry's top investment prospects at this time.
That's a strong claim to make. But it's backed by strong evidence. Take last quarter's growth on the desktop processor front as an example. Numbers from Anandtech indicate AMD's desktop CPU sales improved by 4.7% in Q1, taking the company's share of this critical sliver of the processor market to a multi-year-high 23.9%. Its server processors also grew market share, reaching a multi-year high of 23.6% almost entirely at Intel's expense.
Advanced Micro Devices is also making inroads on the artificial intelligence hardware front. Although Nvidia's dominance of this arena is hardly in jeopardy, data center operators including Meta Platforms and Microsoft are increasingly becoming cost-conscious, and turning to AMD for relief. That's why the company's data center revenue jumped 80% year over year during the three-month stretch ending in March.
And that growth was driven by a relatively immature portfolio of products aimed at the AI market! Just earlier this month, Advanced Micro Devices unveiled its new MD Instinct MI325X AI accelerator chip, which promises 30% more bandwidth and twice the total memory as comparably priced products from rival Nvidia.
Also look for Advanced Micro Devices' cadence of new next-generation AI tech to match Nvidia's current annual pace going forward.
Connect the dots. Today's AMD is a different company from what it was a decade ago. It's significantly different from what it was just a couple of years ago. Most of the market may be missing just how ready today's AMD is to chip away at the share held by each of the leading names in both of its core markets.
AMD stock is worth the wild ride
If you find yourself tempted to step into the underappreciated growth company while its shares are down more than 30% from their record high reached in March, know that the analyst community firmly agrees with your choice. Their current consensus price target of $190.02 per share is more than 20% above the stock's present price, and of the 49 analysts covering this company, 35 of them consider its stock a strong buy. Take the hint.
That being said, even confident bulls should know that AMD stock is apt to remain sea-sickeningly volatile for the foreseeable future. This volatility could include measurably more downside before the ultimate low is reached.
Nevertheless, the wild ride will likely be worth it in the end. Most of the market just isn't seeing or pricing in the full potential here. That suggests an opportunity for you.
