Over the last several years, Advanced Micro Devices (AMD -5.89%) has launched a significant recovery. The once-lagging company has produced cutting-edge semiconductors and seen tremendous revenue growth for its investors.
That has raised its stock price and, therefore, the market value to $140 billion over time. The current concern is whether AMD’s expansion would enable it to become a $1 trillion stock by 2030.
How to get to $1 trillion
In order to achieve that milestone, AMD stock must increase by an average of 28% annually, from its current value of $140 billion to $1 trillion in eight years. Of course, a lot can happen in eight years, and even the most knowledgeable analyst would probably be unable to precisely predict whether it would be able to accomplish that objective. However, the situation suggests that the objective is reachable.
However, AMD has emerged as a market leader in both CPUs and GPUs. Despite recent difficulties, the gaming industry has progressively increased its market share in the data center business, surpassing once-dominant Intel, according to Mercury Research. Additionally, recent acquisitions of Xilinx and Pensando have improved its capabilities for edge computing and supercomputing.
Revenue of about $12.4 billion in the first half of the year increased 70% from the same time in 2021. The rise in sales contributed to the non-GAAP net income’s 73% increase to $3.3 billion in the first two quarters of 2022.
Nevertheless, despite these gains, AMD stock has been hit hard by the Nasdaq bear market. Since peaking in November of last year, it has dropped by 45% in value. It also trades at 37 times earnings right now. That multiple, which is substantially less expensive than Nvidia’s 53 P/E ratio, could not accurately represent the entire scope of its growth. While AMD may still seem to be a good semiconductor stock to buy at the moment, it may need to keep up its rapid growth to sustain its high valuation.
AMD’s uncertain course
A downturn is anticipated, according to analyst projections. Although 60% sales growth is predicted by consensus projections for this year, revenue growth is expected to decelerate to 13% in 2023.
Though the semiconductor sector is expected to expand at a compound annual growth rate of 12% until 2029, according to Fortune Business Insights, the 2023 sales figure is at least consistent with predictions. Additionally, AMD seems to be in a good position for a comeback given that the data center industry and other sectors are experiencing a secular bull market.
These circumstances could indicate that CEO Lisa Su, who turned AMD from a penny stock on the verge of bankruptcy to the powerhouse it is today, is more responsible for achieving the $1 trillion objective. She also chose to concentrate on CPUs and GPUs, which helped the company become more focused.
Stockholders shouldn’t, however, expect she’ll work for AMD indefinitely. Su has previously worked with Texas Instruments, IBM, and Freescale, which is now a part of NXP Semiconductors, after she earned her PhD at MIT in 1994. Prior to becoming the CEO in 2014, she worked at AMD since 2012.
Su is 52 years old right now. She has a number of options now that AMD has been a success. The decision as to whether Su will continue working at AMD for the rest of her career, take on another firm turnaround, or choose to retire ultimately rests with Su.
Although AMD’s growth rate suggests a $1 trillion market valuation in 2030 is feasible, unexpected developments today might scuttle that growth narrative.
However, AMD has to perform well when it matters. Even if sales growth temporarily slows to 13%, the firm seems prepared to offer market-beating growth. Thus, even if this semiconductor company does not reach $1 trillion by 2030, investing in AMD now could provide significant gains.
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