The AI Chip Battle: Why AMD’s Stock Price Defies Logic
As I reflect on the past decade, a few constants come to mind. My fitness routine remains grueling, and I still struggle to get enough sleep. But in the tech world, two chip giants have consistently impressed: Nvidia and AMD. That is, until 2024, when AMD’s stock price took a surprising 17% dive.
A Contrarian View
Despite this downturn, AMD’s earnings growth has been remarkable, and its innovation in the chip space is undeniable. In a recent conversation with AMD chair and CEO Lisa Su, I was reminded of the company’s impressive execution. Moreover, Intel’s struggles have created opportunities for AMD to gain market share. So, what’s behind the stock’s poor performance?
Three Key Challenges
According to Wedbush tech analyst Dan Ives, AMD’s stock is being driven more by perception than fundamentals. Three key issues are contributing to this disconnect:
- The Nvidia Effect: Nvidia’s product pipeline, led by the new Blackwell chip, is seen as a year ahead of AMD in terms of AI performance.
- The Cloud Player Effect: Major cloud players are opting for custom chips from Marvell and Broadcom, limiting AMD’s market share gain opportunities.
- Weak PC Sales Outlook: The PC market outlook for 2025 remains subdued, putting risk to AMD’s estimates.
A Glimmer of Hope
Despite these challenges, AMD’s fundamentals tell a different story. The company’s new AI chip, the MI300, has notched impressive sales, and its earnings growth potential is significant. If the PC market doesn’t drop off and AI demand stays strong, AMD’s earnings growth could exceed 70%.
Undervalued and Overlooked
AMD’s stock trades at a trailing PEG ratio of 0.31 times, below 1 times for Nvidia and Intel. Its forward PE multiple of 24 times is also well under Nvidia’s. With the stock off by almost 50% from its 52-week high, investors may be overlooking its growth potential.
A Buying Opportunity?
As Evercore ISI semiconductor analyst Mark Lipacis notes, “We remain buyers based on our view that the company continues to gain traction as the #2 supplier of merchant accelerator solutions.” With its strategy focused on optimizing its solution for high-volume AI workloads, AMD may be poised for a comeback.
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