Back in November 2022, OpenAI released ChatGPT, which sparked an explosion in interest from investors in the world for artificial intelligence (AI). Stocks related to hardware and software supporting AI expansion started to jump. Advanced Micro Devices (NASDAQ:AMD) benefitted from this. If an investor bought in late 2022 with £2k in AMD (as it’s known) stock, here’s the current unrealised valuation.
Strong gains
I’m going to assume the investor bought at the start of December 2022, in response to the release of ChatGPT. The price at the start of the month was $77.50. Currently, the share price is $128.25. This reflects a 65.5% gain in less than three years. The £2k would be worth £3,310.
Even though this is a significant percentage move, some might be slightly underwhelmed that the AI hype hasn’t translated to AMD stock like Nvidia has rocketed higher. After all, when we talk about AI stocks, Nvidia always comes up as the benchmark comparison. For reference, Nvidia’s up 739% during the period in question.
In May 2024, the share price traded above $200, meaning that during the holding period, the investor would have been up 172%. Yet during the stock market fall in April, it traded below $80. So it’s clear that AMD’s a volatile stock that must be treated cautiously.
Interestingly, over the same time period, the Nasdaq index is up 69%. So an investor would currently be in more profit if they had chosen an index tracker. The index’s volatility was smaller, which some people may see as a good or a limiting factor.
Looking ahead
It’s true that AMD has benefitted massively from the AI boom. It makes money primarily by designing (not manufacturing) chips, such as graphics processing units and central processing units. These are key parts to helping power AI models and related workflows. AMD’s also involved in data centres, with product designs to power cloud computing and enterprise workloads.
Looking forward, I think demand for the designs will continue to grow. It outsources production to other companies, meaning that it can create more of a unique selling point by offering the design features. This should help it stay relevant.
However, it needs to ensure it keeps serving not just the big tech companies, but also companies related to gaming and other market segments. Otherwise the risk is that it becomes too focused on just one sector, which makes it more vulnerable if there’s a slowdown in that area.
I feel that AI adoption is only going to increase further and we are by no means finished with the current market cycle. Therefore, I think it’s a growth stock that investors can still consider, despite the rally in recent years.
