Anticipated Outcomes: Two Shares Set to Surpass AMD's Value within a Half Decade
Advanced Micro Devices (AMD) faced a rough patch in 2024, losing nearly 21% of its value while the broader PHLX Semiconductor Sector index experienced robust gains of 24%. Over the past five years, AMD has lagged behind the broader semiconductor industry, with gains of 141% versus the PHLX Semiconductor Sector index's 170%.
Various factors have contributed to AMD's underperformance, including the decline in the personal computer market post-pandemic, soft demand for gaming consoles, and the company's failure to capitalize on the artificial intelligence (AI) boom while competitors like Nvidia seized the opportunity.
Despite these challenges, AMD has potential catalysts that could boost its performance in the future. However, two companies may outpace AMD's market cap growth over the next five years, due to their involvement in the rapidly proliferating AI market.
1. Palantir Technologies
Palantir Technologies' stock has skyrocketed, increasing by 301% in the past year. Its market cap is now just short of AMD's, making it a strong competitor in the AI software market. Customers are eager to implement Palantir's Artificial Intelligence Platform (AIP) to integrate generative AI into their business processes, leading to improved revenue growth. Analysts anticipate $2.8 billion in annual revenue for Palantir in 2024, marking a 26% increase from the previous year.
Palantir's increasing customer count and the expanded adoption of AIP by existing clients are helping improve its bottom line. The company's top line is projected to grow at a 20%+ rate for 2025 and 2026. The integration of AI software platforms by both government and commercial clients is expected to fuel stronger growth than experts predict.
The AIP's success has driven stronger customer spending, which has led to an increase in Palantir's net dollar retention rate. This metric, which compares trailing 12-month revenue generated by Palantir's customers at the end of a quarter to the trailing 12-month revenue recognized from those same customers in the year-ago period, surged to 118% in the third quarter of 2024, a significant improvement from the previous year's 107%. This indicates a growing interest in Palantir's offerings and its potential to become a leading player in the AI software platforms market.
2. Arm Holdings
Arm Holdings has also experienced a remarkable increase in its stock price, with gains of 100%. The market cap gap between Arm and AMD has shortened dramatically in the past year. Arm Holdings achieves revenue through licensing fees and royalties from clients who use its chip architecture and intellectual property. The British technology company boasts a prominent position in the smartphone market, with its architecture powering 99% of smartphone application processors.
Arm Holdings has also gained ground in the Internet of Things market, with 54% of IoT devices containing processors designed using its IP. The company is expanding its reach to the cloud computing and networking equipment markets, with its cloud computing chip share increasing to 15% in fiscal 2024, a substantial rise from 9% in 2022. In the networking equipment market, Arm Holdings' share has grown to 28%.
These improvements stem from the increasing adoption of Arm's architecture by major chip designers like Nvidia for server processors used in AI systems. This partnership enhances Arm's technology adoption, driving licensing fees and royalties. Analysts anticipate that Arm's earnings will grow by 31% in the next fiscal year, following a 23% increase in the current one. ARM's strong momentum is expected to continue through the next five years, driving growth in its revenue and earnings due to its expanding customer base and influence in the global chip market.
In conclusion, Palantir Technologies and Arm Holdings have seen significant growth in the AI software market and semiconductor industry, outperforming AMD. Palantir's success is attributed to its AI platform and strategic partnerships, while Arm Holdings' growth is tied to its energy-efficient chip designs and strategic partnerships with companies like Nvidia. While specific revenue and market cap projections for the next five years are not explicitly stated, both companies are projected to continue growing strongly in their respective markets, potentially surpassing AMD's market cap in the future.
- If you're considering investing in the AI software market, Palantir Technologies could be a promising choice. Its stock has surged, reaching nearly a 301% increase in the past year, and analysts project a 26% revenue growth in 2024.
- In the semiconductor industry, Arm Holdings has shown remarkable growth, with a 100% rise in its stock price in the past year. Its market cap gap with AMD has significantly narrowed, and with its strong position in the smartphone and IoT markets, analysts anticipate a 31% earnings growth in the next fiscal year for this company.
