The AI Arms Race Heats Up: Is AMD a Hidden Gem?
The capital markets have been on fire this year, with the S&P 500 and Nasdaq Composite surging 24% and 30%, respectively, as of December 20. Amidst this rally, artificial intelligence (AI) has remained the hottest investment theme, with semiconductor stocks generating some of the most lucrative returns. However, one stock that has failed to capture investors’ attention is Advanced Micro Devices (NASDAQ: AMD), Nvidia’s chief rival.
A Misunderstood Company
As of this writing, AMD’s shares have plummeted 19% this year, a stark contrast to Nvidia’s 172% return. But is this decline justified? Let’s dive deeper into the factors influencing AMD’s price action.
Segmented Growth
In late October, AMD announced its third-quarter financial results, reporting revenue of $6.8 billion, a mere 18% year-over-year increase. However, this modest growth belies the company’s diverse business segments. While its gaming and embedded segments declined by 69% and 25%, respectively, its client segment rose 29%, and its data center business soared 122% year over year. This disparity highlights AMD’s potential for growth.
The Data Center Advantage
AMD’s data center business is growing at a pace comparable to Nvidia’s, a development that should not be overlooked. As companies seek to diversify their AI investments, AMD’s MI300 accelerators are gaining traction, with Microsoft and Meta Platforms, both Nvidia customers, incorporating them into their chip stacks. With new GPU lines scheduled for release, AMD is poised to chip away at Nvidia’s market dominance.
Valuation Metrics
One key metric suggests AMD is undervalued: its PEG ratio of 0.31, implying a deep discount. Additionally, AMD’s forward price-to-earnings (P/E) multiple of roughly 24 is in line with the S&P 500, indicating that investors have lost enthusiasm for the company.
A Rare Opportunity
In my opinion, the negative sentiment surrounding AMD is unwarranted. The company’s potential in the GPU space alone should more than compensate for its losses in non-core operations. Investors have a rare opportunity to buy a leading chip company at a low price, making AMD a bargain at its current valuation.
Expert Insights
When our analyst team has a stock tip, it’s worth listening. After all, Stock Advisor’s total average return is 912%, outperforming the S&P 500 by a significant margin. They’ve identified AMD as one of the 10 best stocks for investors to buy right now, along with nine other overlooked opportunities.
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