The Underdog of AI Chips: Why AMD Could Be Poised for a Comeback
The stock market can be unpredictable, with investors often flocking to the most popular companies. However, this phenomenon can create opportunities for underappreciated stocks to shine. Advanced Micro Devices (NASDAQ: AMD) is one such company that has been overlooked despite its potential in the artificial intelligence (AI) chip market.
A Fraction of Nvidia’s Success, But Still a Player
While Nvidia dominates the AI chip market, AMD’s $3.5 billion in data center revenue in Q3 is a significant fraction of the market. Moreover, AMD’s Instinct line of accelerator chips is purpose-built for AI, and major technology companies like Microsoft and Meta Platforms are already working with them. With the AI chip market expected to grow from $61.4 billion in 2023 to $632 billion by 2032, AMD is well-positioned to capitalize on this trend.
Diversification: AMD’s Secret Weapon
Unlike Nvidia, which relies heavily on data center sales, AMD has a diversified revenue stream. This diversification could be a key factor in AMD’s future success, as its data center segment grew 122% year over year in Q3, outpacing Nvidia’s 112% growth. As AI becomes a more significant part of AMD’s business, its total revenue growth is likely to accelerate.
A Valuation Disconnect
Despite its inferior market position, AMD’s stock trades at a relatively low price-to-sales ratio of 8.1, significantly lower than Nvidia’s valuation. This disconnect presents an opportunity for investors, as AMD’s revenue is expected to grow nearly 27% in 2025. If this growth materializes, AMD’s stock could experience a significant surge.
A Buy Signal for AMD
When you consider AMD’s growth potential, diversification, and undervaluation, it becomes clear that the stock is a buy. With analysts estimating revenue growth of nearly 27% in 2025, AMD’s stock could experience a stellar one-year return. Factor in a higher valuation, and AMD could be poised for a stretch similar to Nvidia’s impressive performance over the past few years.
Expert Insights
Our analyst team has identified AMD as one of the top 10 stocks for investors to buy right now. With a total average return of 889% compared to the S&P 500’s 171%, our team’s stock tips are worth considering. Discover the other 9 stocks that made the list and learn why AMD could be a smart investment for your portfolio.
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