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SoundHound AI has emerged as a significant player in the artificial intelligence (AI) stock market in 2024, showcasing a remarkable 936% increase in value. This surge can be attributed to several positive factors, including impressive growth metrics, a strategic investment from AI frontrunner Nvidia, and favorable analyst reviews from Wall Street suggesting that this voice AI solutions provider may have long-term potential.
On the upside, SoundHound AI is rapidly expanding its customer base and capitalizing on the substantial opportunities within the voice AI solutions sector. However, the downside is that the stock has become quite pricey, currently trading at an astounding 109 times its sales. For context, Nvidia, a pioneer in the AI industry, has a price-to-sales ratio of 31, even after its robust growth and leading position in the AI chip market. Investors may want to consider alternatives to SoundHound AI if they are looking for more accessible entry points into AI investments.
Advanced Micro Devices (AMD) stands out as a viable alternative for investors seeking to thrive in the burgeoning AI sector. Here are some compelling reasons why AMD may represent one of the top AI stocks to watch as the new year approaches.
A solid turnaround could be in the cards for AMD in 2025
Despite struggling over the past year with a 16% decline in stock value, AMD has the potential for recovery, especially as the PHLX Semiconductor Sector index has risen by 20% in the same timeframe. AMD’s challenges in the AI chip segment have contributed to its underwhelming performance.
The company anticipates around $5 billion in sales from AI graphics processing units (GPUs) deployed in data centers, which pales in comparison to Nvidia’s record-setting $30.8 billion from its data center business last quarter—a staggering 112% increase from the previous year. Nevertheless, AMD’s AI prospects are not entirely bleak.
For instance, AMD’s data center revenue experienced a remarkable 122% year-over-year growth in the third quarter of 2024, reaching $3.5 billion, largely fueled by rising AI GPU and server processor sales. Notably, AMD has consistently raised its data center GPU sales expectations throughout 2024, initially projecting $2 billion at the year’s inception—a sign of increasing momentum in this segment.
The outlook remains promising for AMD investors as the company is poised for continued growth in data center GPU sales in 2025, underpinned by robust demand and an enhancing supply chain. During the earnings conference call in October 2024, CEO Lisa Su emphasized that the company is “planning for significant growth” in AI chip supply for the coming year.
AMD’s partnership with Taiwan Semiconductor Manufacturing (TSMC) is pivotal, with reports suggesting TSMC will double its advanced chip packaging capacity by the close of 2025. While Nvidia reportedly holds 60% of TSMC’s advanced packaging for that timeline, AMD is still likely to see a notable increase in its AI chip production, which can foster further growth in its data center revenues.
Critically, AMD’s trajectory does not necessitate outperforming Nvidia to experience substantial growth in revenue and earnings. AMD management predicts that the AI accelerator market is set to reach $500 billion by 2028, and securing even a modest 10% market share could lead to a tenfold increase in its data center GPU revenue from current figures.
Additionally, AMD has opportunities within the personal computer (PC) market related to AI advancements. According to Gartner, global AI PC shipments are poised to escalate to 114 million units in 2025, up from an estimated 43 million in 2024, with AMD well-positioned to leverage this growth. CEO Lisa Su noted that “HP and Lenovo are on track to significantly expand their lineup of Ryzen AI Pro platforms in 2024, and we expect over 100 Ryzen AI Pro commercial platforms in the market next year. This puts us in an excellent position to gain market share as businesses transition from older Windows 10 PCs that will lose Microsoft technical support in 2025.”
These factors combined lead analysts to forecast a robust recovery in AMD’s financial performance in the near future.
Stronger growth and an attractive valuation make the stock worth buying
Forecasts indicate that AMD’s revenue will grow by 13% in 2024, reaching $25.6 billion, alongside a projected 26% increase in earnings per share to $3.33. Early indications point to a significant growth acceleration for AMD in 2025.
The stock is currently priced at 25 times its anticipated earnings, representing a discount compared to the earnings multiple of 33 for the tech-heavy Nasdaq-100 index. Should AMD’s earnings rise to $5.10 per share by 2025, and if it trades at a multiple of 30, the stock price could reach $153—a 25% increase from current valuations.
Still, there is room for further appreciation if AMD exceeds earnings expectations and attracts a more favorable valuation from the market. Hence, investors interested in acquiring a well-valued AI stock with strong growth prospects should consider evaluating AMD as a more attractive option compared to the high-flying SoundHound AI.
Source
www.fool.com