Can Surging AI Chip Stocks Stay Red-Hot This Year?

U.S. chip stocks rose sharply in 2024, with the $S&P 500 Index(.SPX.US)$ approaching record highs as AI optimism drove gains in $NVIDIA(NVDA.US)$ and other chipmakers. Semiconductor stocks rose following the first major earnings report of the season from $Taiwan Semiconductor(TSM.US)$. The industry is closely monitoring chip demand, and TSMC forecasts a 20% increase in revenue for the year. Heavyweight chipmaker Nvidia has continued to set new highs since 2024, and has become the top gainer among chipmaker stocks.

However, in a client note, Northland Capital Markets analyst Gus Richard downgraded $Advanced Micro Devices(AMD.US)$ stock from outperform or buy to market perform, or neutral. He noted that investors were overestimating AMD's AI chip sales. According to Richard's analysis, if AMD's sales of AI chips were to reach $16 billion in 2027, doubling every year from $2 billion in 2024, the company would achieve a 13% market share. To stay competitive with Nvidia, AMD would need to continue investing heavily in research and development. Richard predicts that AMD's total revenue in 2027 would be $45 billion, a figure that is already accounted for in the current stock price.