AMD's shares closed at a record high on Thursday and continued to rise in early trading on Friday. Since October, they have surged by approximately 65%, outperforming both Nvidia and the Philadelphia Semiconductor Index during this period. This week alone, AMD's shares have surged by about 12%, surpassing Nvidia's nearly 6% increase. Nvidia, which also reached an all-time high on Thursday, is also experiencing gains on Friday.
According to David Wagner, a portfolio manager at Aptus Capital Advisors, investors are optimistic about the significant growth potential of chips and believe that Nvidia will not be the sole beneficiary of this growth. Wagner stated that investors are seeking a catch-up trade following Nvidia's exceptional performance over the past year.
The entire semiconductor sector received a boost on Thursday due to the better-than-expected fourth-quarter results from Taiwan Semiconductor Manufacturing Co., which is the main chipmaker for Apple Inc. and Nvidia. Taiwan Semiconductor Manufacturing Co. announced that it expects a revenue growth of at least 20% for the year, following a decline in 2023.
AMD's shares received a boost earlier this week when analysts at firms including Barclays Plc, Susquehanna Financial, and TD Cowen raised their price targets. Barclays now has the highest target at $200 per share, up from $120, citing the potential for artificial intelligence as a driving force. Currently, the stock is trading as high as $167. According to data compiled by Bloomberg, more than 70% of analysts covering AMD have a buy-equivalent rating.
However, there are potential risks ahead. Despite the stock's rapid ascent, the average 12-month price target of around $150 implies a drop of about 9%. Analysts may be slow to update target prices and ratings, especially in the weeks before an earnings release. Both AMD and Nvidia have upcoming earnings reports that will provide insight into their growth outlook for the coming year. AMD is set to release its results on Jan. 30, followed by Nvidia in late February.
Nvidia's significant surge and ongoing popularity are attributed to its robust revenue growth, which gives it a more modest valuation compared to many of its peers. Nvidia trades at approximately 28 times forward earnings, which is a premium compared to the semiconductor share benchmark at about 23. On the other hand, AMD trades at a multiple of more than 40.
Alec Young, chief investment strategist at MAPsignals, cautioned that both stocks are currently highly valued, especially AMD, which still needs to demonstrate its earnings potential. He advised against chasing these stocks at their current levels but suggested that any weakness in their prices could present a buying opportunity for those bullish on the long-term prospects of artificial intelligence.
Despite the potential risks, the strength of the sector at the beginning of the year indicates that the enthusiasm for AI that drove the performance of chipmaker shares and the tech sector in 2023 remains strong, even as the broader market appears to have stalled. Will Rhind, chief executive officer of GraniteShares, emphasized that the belief in AI implies a broader market opportunity, not limited to just a few companies. He sees this as reinforcing the narrative that AI has a significant growth potential.
In other tech news, the Hang Seng Tech Index, which includes companies like Tencent Holdings Ltd., Alibaba Group Holding Ltd., and Xiaomi Corp., has experienced a tough start to 2024, with a 17% decline after three consecutive years of losses. Additionally, Apple Inc.'s highly anticipated Vision Pro mixed-reality headset is available for preorders, marking the company's entry into the consumer mixed-reality market. Apple has also announced plans to open up its tap-to-pay technology on iPhones to competitors, aiming to avoid potential antitrust fines in the European Union. However, Amazon.com Inc.'s proposed acquisition of Roomba maker iRobot Corp. is expected to face regulatory hurdles in the European Union, and fast fashion giant Shein is navigating potential regulatory scrutiny as it prepares for a US initial public offering. Meanwhile, Paytm, an Indian fintech company, has reduced its losses in the latest quarter through cost-cutting measures and expanding its services to small merchants.
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