Amongst investment opportunities in the unreal intelligence (AI) realm, semiconductor stocks have turn into a top alternative. Nvidia has been the preferred amongst chip stocks during the last two years, and for good reason. The corporate’s graphics processing units (GPUs) play a crucial role in generative AI development, and corporations around the globe can not seem to get enough of what Nvidia has to supply.
While it stays a solid opportunity on the intersection of semiconductors and AI, I see one other stock that appears like a greater value at once. Below, I’ll break down the present price motion around Advanced Micro Devices(NASDAQ: AMD). And I’ll explain why I feel the corporate is well-positioned for years of sturdy growth despite a troublesome matchup with Nvidia.
The chart below illustrates the value movements amongst AMD and a lot of leading semiconductor stocks in addition to the VanEck Semiconductor ETF during the last yr. Unlike its peers, shares of AMD have dropped considerably — and as of Jan. 14, the stock is hovering near a 52-week low.
Considering how integral chips are for AI development, what’s causing AMD stock to dump while its competition witnesses overwhelming support from investors?
From what I can gather, the poor sentiment surrounding AMD boils right down to growth — or lack thereof. Immediately, the corporate’s top line is growing at a modest 18%. Compared to Nvidia, with its nearly triple-digit sales growth, it appears underwhelming. Nonetheless, I feel investors are missing the forest for the trees.
Image Source: Getty Images
While AMD’s overall revenue growth may appear muted when benchmarked against the competition, it’s crucial to check out the finer details before jumping to a conclusion. The corporate breaks its revenue down into 4 major categories: data center, client, gaming, and embedded.
In the intervening time, the corporate’s gaming and embedded segments will not be growing in any respect. Unfortunately, this lack of growth is cannibalizing the areas of the business which might be thriving. Per the corporate’s most up-to-date financial report, the information center operation grew by 122% yr over yr — nearly an identical to that of Nvidia’s data center GPU segment.
Despite this impressive growth, AMD trades at a price/earnings-to-growth ratio (PEG) of just 0.3. This implies that analysts could also be missing just how robust the corporate’s data center business is and subsequently muting its growth estimates. Note that a stock with a PEG ratio below 1 generally implies that it’s undervalued.
This yr goes to be an interesting one for the chip space. Investors and Wall Street analysts are going to be assessing every possible statistic surrounding Nvidia’s recent Blackwell GPU — which is reportedly already sold out for the following 12 months. This is nice news for Nvidia on the surface, but I feel AMD has a giant opportunity looming within the background.
Namely, these supply-and-demand dynamics provide an interesting opening for AMD in that the corporate can compete on price and offer an optimal solution when businesses simply cannot get their hands on Nvidia’s GPUs. Such an idea just isn’t unreasonable to purchase into, either.
An enormous tailwind for AMD during the last yr has been notable adoption of its MI300 accelerators by hyperscalers including Oracle, Microsoft, and Meta Platforms. While each of those firms relies heavily on Nvidia’s GPU architecture as well, they’ve made moves to diversify their AI infrastructure by complementing their respective Nvidia stack with products developed by AMD.
Once you have in mind that AMD already has a lineup of successor chips scheduled to be released throughout 2025 and 2026, I feel the corporate has a superb probability of profiting from the continuing demand shaking throughout the semiconductor landscape by offering a lot of alternative solutions to Nvidia’s product suite — all at a more reasonable price point.
To me, investors ought to be laser focused on the expansion trends around AMD’s data center GPU segment. If the corporate can proceed accelerating this specific a part of its business profitably, then I feel it’s only a matter of time before investors begin to be aware of its scale, and shares could begin to interrupt out.
I see AMD as a compelling long-term opportunity for AI investors and think the continuing depressed price motion makes now a lucrative time to purchase the stock.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Adam Spatacco has positions in Meta Platforms, Microsoft, and Nvidia. The Motley Idiot has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Broadcom and recommends the next options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
