This Stock That’s Climbed 14,000% Since Its IPO Is the Newest Member of the $1 Trillion Club. Is It Still a Buy?
Key Points
This company participates in the high-growth AI chip market.
This has translated into explosive growth, with data center revenue soaring in the triple digits in the recent quarter.
The trillion-dollar club has been leading the S&P 500 through this bull market and to multiple records over the past few years. Now, this isn't an official club but rather a reference to companies with a market value of more than $1 trillion -- and today, there are more than a dozen of them, mainly in the technology sector.
Why is the trillion-dollar club so tech-heavy? The growth of artificial intelligence (AI) surely plays a significant role. Most of these players have seen their market values surge as they've become more involved in this hot space and even generated soaring revenue thanks to AI. For example, Nvidia became the first company to reach $4 trillion in market value last year, and its market capitalization has since surpassed $5 trillion.
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Just this week, another company -- one that's greatly involved in the AI race -- saw its market value reach $1 trillion, offering it a spot in this fast-growing club. This is a stock that's climbed 14,000% since its initial public offering. Now the question is: Is this tech player still a buy? Let's find out.
Image source: Getty Images.
The latest $1 trillion company
Without further ado, let's discover this well-established company -- one that's been around since 1969 -- that reached $1 trillion in value this week. I'm talking about Advanced Micro Devices (NASDAQ:AMD).
You may immediately think of Nvidia when someone mentions the words "AI chips," but AMD is also a significant player in this space. AMD has seen data center revenue explode higher over the past several quarters as its AI chip platforms have gained in performance. Nvidia was the first to market with its GPUs, but in recent times, AMD has launched products that compete well with those of the market leader. For example, this summer, AMD launched its Helios rack scale solution, one that it says is designed to offer more compute and more high bandwidth memory capacity than Nvidia's new Vera Rubin NVL72 rack.
In the recent quarter, AMD showed it's also giving Nvidia a run for its money in terms of growth. While Nvidia's revenue climbed about 100% to $96 billion, AMD's revenue advanced 50%, and the company's data center revenue increased 100%. Being that AMD's revenue level of about $11 billion for the quarter is much lower than that of Nvidia, it may be easier for this company to deliver greater growth in the quarters to come if demand for AI systems continues to soar. (And so far, the message from cloud companies, which serve those who need chips to run workloads, is very positive.)
AMD is a leader in CPUs
It's also important to remember that AMD is a leader in the central processing unit (CPU) market, and these chips are seen as a key tool driving the use of AI agents. This suggests the CPU could be big as we actually use AI in the real world to carry out various tasks and solve problems. This, too, could supercharge AMD's growth.
So it's not very surprising that investors have piled into AMD shares and that the company's market value reached the $1 trillion mark.
Now, let's return to our question: Is this tech player still a buy after such gains?
It's clear that AMD has a bright future and could even deliver greater growth than Nvidia in the quarters to come. AMD is progressing in AI chips and is a leader in the CPU market, and these are two elements that could boost revenue. Though Nvidia has entered the CPU space, it may not be easy to step ahead of AMD and Intel.
All of this could continue to attract investors and lead to more gains for the chip giant. Still, AMD is trading at 81x forward earnings estimates, compared to 24x for Nvidia, and I don't think it's worth this much of a premium considering Nvidia's strengths. AMD is a fantastic company, but I would keep it on my watch list and consider buying on a potential dip.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has a disclosure policy.