AI Market Overview
The artificial intelligence (AI) market is a blazing fire in the financial landscape, attracting hordes of investors. Last year, the market soared close to $200 billion, with a projected CAGR of 37% until 2030. By then, the industry could hit the stratosphere at nearly $2 trillion. Despite its recent ascent, AI shines like a star just breaking through the night sky, offering ample investment possibilities.
Advanced Micro Devices (AMD)
AMD’s stock has been a racecar, zooming ahead by 43% this year. The company pivoted towards AI, aiming to carve its niche in the lucrative market. Last year, Nvidia dominated AI GPUs, leaving AMD in the dust. However, AMD’s renewed focus is set to make waves in 2024 with its MI300X AI GPU, signaling a potential power shift in the industry.
Although AMD’s earnings don’t yet reflect its AI investments, the financial winds seem favorable. In Q4 2023, AMD’s revenue surged 10% YoY to $6 billion, surpassing analysts’ expectations by $60 million. The AI-centric data center segment saw a staggering 38% revenue growth, while the client segment boomed by 65% YoY, fueled by PC market improvements. AMD’s expansion into AI PCs further solidifies its stance in the market.
Alphabet
Alphabet is a titan in the tech realm, with Android, YouTube, and Google as its crown jewels, attracting billions of users globally. The company also holds a lion’s share of 25% in the digital advertising market. However, the spotlight recently shifted to Alphabet’s burgeoning AI endeavors.
In late 2023, Alphabet unveiled Gemini, a substantial language model set to rival cloud giants like Microsoft and Amazon. Nevertheless, a stumble marred Alphabet’s stride as Gemini made errors depicting historical figures and struggled with notable distinctions, leading to a temporary shutdown of Alphabet’s AI image services.
Despite this setback, Alphabet boasts a robust free cash flow of nearly $70 billion last year. With a mountain to climb in refining its AI tech and facing fierce competition, Alphabet remains financially sound, ready to continue investing in its business.
Which is the Better Bet?
While both AMD and Alphabet hold promise in the expanding AI landscape, recent developments tip the scale in favor of AMD. Despite late entry into the AI race, AMD’s chip business appears more reliable compared to Alphabet’s recent software hiccups.
EPS estimates indicate a brighter future for AMD over the next two years. Projection models suggest AMD’s earnings could soar to over $7 per share, outpacing Alphabet’s forecasted $9 per share. When multiplied by their respective forward price-to-earnings ratios, AMD’s stock could surge by 98%, dwarfing Alphabet’s 30% growth potential by 2026.
Amidst the turbulence, AMD stands out as a compelling investment opportunity over Alphabet at present, shining like a beacon in the AI storm.
Where to invest $1,000 right now
When our analyst team shares a stock tip, it’s wise to listen. Their newsletter, Motley Fool Stock Advisor, has outperformed the market for two decades.*
They’ve recently unveiled the 10 best stocks for investors, with Advanced Micro Devices making the cut among others potentially overlooked.
*Stock Advisor returns as of March 8, 2024