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The global semiconductor industry is expected to be worth over $600 billion in 2022. While it's still trumped by the $10 trillion farming industry and the $5 trillion oil and gas industry, nearly 80% of all food or fuel doesn't come from a mere handful of manufacturers. That gives chip stocks a unique edge.
When it comes to semiconductors, the absence of a single chip can halt the production of devices that sell for thousands. The global chip shortage resulted in a pullback in revenue of more than $500 billion between the semiconductor and the numerous others that rely on chip production. The auto industry alone lost more than $210 billion in 2021.
It goes without saying that revenue for the chipmakers is likely to ebb and flow while the shortage persists. Still, as the industry moves closer toward a rebound, it could enter into a period of robust growth.
In fact, according to Deloitte, the industry has grown 10% so far in 2022. And chips will only become more critical as more industries turn to smart tech and the Internet of Things. This catalyst will drive semiconductor production for autos, appliances, factories, as well as computers, data centers, and smartphones.
While the supply chain issues and shortages still linger - and aren't likely to clear up anytime soon - there's the hope of improvements by the second half of 2022 and the start of 2023.
As the digital landscape continues to grow and transform, nearly three out of five chip companies have set their sights on the future by producing cutting-edge chips. While this pushes the cost of their products higher - NVIDIA's Titan RTX GPU will set you back $2,500 - some companies offer a more affordable option.
And today, we've got one chip stock with promising growth ahead...
Stock Forecast: Advanced Micro Devices
Advanced Micro Devices Inc. (NASDAQ: AMD) is not a chip stock to sleep on. Over the past three years, the California-based semiconductor firm's stock price has moved 556% higher from $25 to the 52-week high of $164.
AMD stock might've pulled back by 40%, but this is nothing to worry about. In fact, it provides a significant discount on a chip stock that has the potential to move much higher in the long run.
According to Morningstar, the company has achieved trailing returns of 30.98% over the past 10 years - ahead of the 21.55% achieved by the industry.
And at the start of February 2022, AMD reported revenue of more than $16 billion for 2021. That's an increase of 68% from the previous year - a solid performance during a time when the industry was in a bind over the shortages.
The improvement was due to higher revenue brought in by the Computing and Graphics and Enterprise and Embedded and Semi-Custom divisions, most of which tie back into the $300 billion gaming industry.
AMD's operating income grew to $3.6 billion from $1.4 billion the previous year. The semiconductor firm also reported $4.8 billion in revenue for the fourth quarter of 2021 - up 49% year over year.
This excellent performance is before AMD's acquisition of the semiconductor manufacturer Xilinx, which only opens their market potential even wider by providing AMD with the means to produce chips capable of powering artificial intelligence (AI). This puts them in more direct competition with Nvidia, which has a stronghold on GPUs that can meet the intense demand that AI computation requires by expanding their chip portfolio.
And just this month, AMD announced another acquisition worth $1.9 billion to buy Pensando, a cloud computing and security services platform. With Pensando, AMD also gets access to a high-performance, fully programmable packet processor. The aim is to extend the firm's current data center capabilities.
All of this is to say that AMD stock is a long-term growth story in the making. The semiconductor firm is building itself up for the future, and investors who get in now could reap the benefits of that setup.
But how much return is possible?
Well, analysts over at CNN set a price prediction of $200 for AMD. Now, if you were to buy at today's price of $90 per share, you could see potential returns of more than 120%. And based on the historical performance, we wouldn't be surprised to see AMD stock climb as much as 575% higher over the next five years.
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