Wall Street Sees 48% or More Upside for These AI Stocks. Should You Buy Them?

Industry Outlook - There is significant optimism regarding the long-term prospects of leading semiconductor makers, driven by the increasing demand for AI chips as big tech companies invest in artificial intelligence [1] - The demand for AI chips is expected to grow as companies develop fully autonomous vehicles and humanoid robots for factory work [1] - Near-term challenges include tariffs and economic concerns, which may present opportunities to acquire leading chip stocks at lower valuations [2] Company Analysis: Advanced Micro Devices (AMD) - AMD's stock has decreased by 44% over the past year, but analysts maintain a positive outlook for the company's ability to meet the rising demand for AI workloads in data centers [4] - The consensus rating for AMD is a "buy," with an average price target 51% above its current share price of $90 [4] - AMD reported a 14$5 billion generated from its MI300 series GPUs in data center AI revenue, which is expected to grow into the tens of billions [5] - The company has shown strength in CPUs across consumer PCs and enterprise servers, with a projected revenue increase of 23% this year [6] - Concerns about AMD's stock performance stem from expectations of Intel's comeback in the CPU market and the lack of specific revenue guidance for its data center business [7] - AMD holds a small share of a $1 trillion data center opportunity, providing affordable alternatives to Nvidia's high-cost chips, which could be advantageous given its low valuation [8] - The stock's forward price-to-earnings multiple of 19 suggests it may be undervalued if it continues to achieve double-digit annual earnings growth [9] Company Analysis: Arm Holdings - Arm Holdings is experiencing enthusiasm for its growth prospects due to its energy-efficient, high-performance chip designs, with a consensus price target 48$100 [10] - The company operates a lucrative business model focused on chip design and licensing, with its chips increasingly used in various markets, including data centers and consumer electronics [10] - Arm's revenue grew by 19% year-over-year in the third quarter of fiscal 2025, with its chips being utilized by major cloud computing services [11] - Concerns about a slowdown in the chip industry and potential impacts on smartphone demand may affect Arm's near-term revenue [12] - Analysts project Arm's earnings to grow at an annualized rate of 31% in the coming years, but the stock is trading at a high valuation of 50 times this year's expected earnings, which may limit upside potential [13] - While Arm has a strong business model with high margins, AMD's lower valuation could lead to superior returns as the industry recovers [14]