What Is One of the Best AI Hardware Stocks to Buy Today?

Key Points

• Advanced Micro Devices is the leader in programmable chips designed for edge devices.

• AI running on edge devices could unlock a monster growth opportunity for the company's embedded chip business.

• 10 stocks we like better than Advanced Micro Devices ›

Graphics processing units (GPUs) are estimated to comprise about half of data center spending. This has propelled the stock of Nvidia to the moon over the past few years. But over the long term, more AI tasks will be processed directly on devices, also known as edge computing. This is a significant growth catalyst for Advanced Micro Devices (NASDAQ: AMD), making its stock a compelling buy right now.

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AMD's ChatGPT moment could be around the corner

Investors are overlooking the importance of AMD's 2022 acquisition of Xilinx. With Xilinx, AMD is now the leader in field programmable gate arrays (FPGAs). These chips are tailor-made for markets that need high performance and low latency for edge computing devices, including AI PCs, cars, and robots.

AMD has been ahead of the curve here almost to a fault. Its embedded segment, which includes FPGAs, posted a revenue decrease of 4% year over year in the last quarter. However, AMD's acquisition of Xilinx was a long-term bet on the market for AI inference, which CEO Lisa Su believes is going to be a lot bigger than AI training. FPGAs will enable AI inference at the edge, where devices can run smaller generative AI models locally without relying on slower processing from a cloud server.

AMD sees a "ChatGPT moment" coming to edge computing, and its embedded business will benefit. Because FPGAs can be adapted to many different applications and markets, the profit margin on these chips could be very high. Analysts expect AMD's earnings to grow at an annualized rate of 30% in the coming years. This level of growth could support substantial gains for investors.

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John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.