Forecast: 1 semiconductor stock that will catch up with Nvidia within 10 years

Semiconductor stocks have captivated Wall Street since the start of 2023. Advances in the chip market have enabled dozens of other industries to take their technologies to the next level. Sectors such as artificial intelligence (AI), cloud computing, virtual/augmented reality, consumer technology, self-driving cars, and more have all benefited from new chip designs from companies like NVIDIA (NVDA -2.36%) And Advanced micro devices (AMD -3.02%)As a result, semiconductor companies are among the best options for investing in the technology sector.

Nvidia and AMD shares have risen 782% and 132%, respectively, since early 2023, when a boom in AI began. Nvidia was able to get a head start in the industry and immediately start shipping its chips to AI developers worldwide. AMD, meanwhile, needed more time to produce competitive hardware.

However, AMD has made promising strides in AI in 2024 and could be on track for significant gains in the coming years. I expect AMD to reach Nvidia's $3 trillion market cap within 10 years.

AMD scales to better meet AI demand

AMD shares have risen 12% since releasing its second-quarter 2024 results on July 30, cheering investors on a win in the AI ​​space that proves the market has become the company's biggest growth driver.

Total revenue increased 7% year over year to nearly $6 billion, driven primarily by a 115% increase in the AI-driven data center segment and a 49% increase in the customer segment. The quarter benefited from an increase in AI graphics processing unit (GPU) and central processing unit (CPU) sales.

Over the past year, AMD has invested heavily in AI, making moves into several areas of the industry that are likely to pay off in the next decade. The company has unveiled its most powerful GPUs yet and announced plans to buy server maker ZT Systems for $5 billion. Both moves make the company more competitive with Nvidia, as the acquisition will allow AMD to bring its AI GPUs to market faster at the scale required by cloud providers.

AMD's chips have already attracted some of the biggest AI players, and the company is committed Microsoft's azure blue, Meta-platformsAnd oracle as customers. These cloud giants are in fierce competition with each other and need powerful hardware to stay competitive. As such, demand for AI chips is likely to continue to rise for the foreseeable future, and AMD is well positioned to make big gains.

AI opportunities outside of GPUs

In addition to GPUs, AMD is investing across the entire AI market to diversify its positions and capitalize on growth catalysts well into the future.

The company has a huge opportunity in central processors for artificial intelligence. CPUs have been AMD's specialty for years. Its market share in CPUs has increased from 18% in 2017 to 34% this year as the company continues to gain market share from IntelMeanwhile, data from Verified Market Reports shows that the AI ​​CPU sector was valued at $15 billion last year and is expected to reach $410 billion by the end of the decade, growing at a compound annual growth rate (CAGR) of 29%.

AMD's CPU expertise also allows it to play a lucrative role in the fast-growing AI-enabled PC market. As demand for AI services increases, so does the need for more powerful hardware. As a result, AI-enabled PCs are expected to account for about 40% of all PCs shipped worldwide in 2025, with the market growing at a compound annual growth rate of 44% through 2028.

At the beginning of 2023, Nvidia's market cap was $359 billion. But just 18 months later, in June 2024, the company hit $3 trillion, following a rally that saw its stock price rise 738%. The company's success was largely driven by a massive increase in AI GPU sales. Nvidia has shown what is possible with success in one facet of AI. Meanwhile, AMD has laid the groundwork in several areas of the industry that could lead to significant share price gains.

AMD's market cap is currently about $251 billion. The company's shares would need to rise 1,200% to reach $3 trillion over the next 10 years. That's a lofty goal, but not an unattainable one. Given that AMD stock has risen more than 3,000% since 2014, that may not be too far-fetched.

Data from YCharts.

The chart above projects AMD's earnings per share to reach just over $7 by fiscal 2026. Multiplying that number by the company's forward price-to-earnings ratio of 46 gives a share price of $336, projecting potential stock growth of nearly 115% through 2026.

But Nvidia's spectacular rise in AI and AMD's performance over the past 10 years suggest that growth may be more modest. As a result, AMD could be on a growth trajectory to reach the coveted $3 trillion market cap in the next decade. The company is expanding rapidly, and you don't want to miss out.