AMD's Stock Dip: A Potential Opportunity in the AI Chip Market

AMD fell 19% this year: Here's why it could be a buy

Advanced Micro Devices (AMD) has seen a 19% decline in stock value over the past year, despite a broader market surge with the S&P 500 and Nasdaq Composite rising by 24% and 30%, respectively. The decline sharply contrasts with competitor Nvidia, which experienced a 172% increase. AMD's third-quarter financial results indicate mixed performance across sectors, reporting revenue of $6.8 billion, an 18% increase year over year. However, a dramatic 69% drop in the gaming division and a 25% decline in the embedded sector raise questions about its overall health. In contrast, growth in client and data center segments at 29% and 122%, respectively, offers a more nuanced picture of AMD's potential. AMD's significant growth in the data center segment is noteworthy, illustrated by a 122% rise. This expansion is driven by strategic partnerships with major tech companies like Microsoft and Meta Platforms, which have adopted AMD's MI300 accelerators within their infrastructure. These moves mark AMD's entry into a segment where it traditionally faced stiff competition from Nvidia. As AMD plans to roll out new GPUs through 2026, it aims to carve out a stronger foothold against Nvidia, whose dominance in the GPU market has hampered AMD's growth. Analysts suggest that the shift in market dynamics, particularly in data centers, may alter the competitive landscape. AMD's increasing share of high-performance computing reflects a broader trend wherein companies seek diversified technology solutions rather than relying solely on established players. Future developments in AMD's product offerings are anticipated to further challenge Nvidia's position. AMD stock shoots up 5.7%: Here's what is fueling it The financial metrics associated with AMD indicate potential undervaluation in the current market. With a PEG ratio of 0.31, significantly lower than industry averages, AMD may represent an attractive investment opportunity. This suggests that the company is currently undervalued in light of its expected earnings growth. Additionally, the company's forward price-to-earnings ratio aligns approximately with the S&P 500, implying a discrepancy in market perception of AMD's growth potential. Despite ongoing challenges, such as a steep decline in gaming revenue, AMD's overarching growth prospects in the data center space suggest a longer-term bullish outlook. Market sentiment appears skeptical, but the metrics underscore that AMD has room for recovery and growth. Understanding these dynamics could be critical for investors considering AMD at its current price points. AMD's performance in the gaming sector poses ongoing concerns, with the division experiencing a 69% drop in revenue year over year. This downturn reflects a broader uncertainty in consumer spending and market trends related to gaming. The embedded segment's 25% decline compounds AMD's challenges, necessitating a robust strategy to stabilize these areas. High volatility in these sectors could inhibit revenue growth, potentially impacting investor confidence further. Nonetheless, AMD's strategic focus on high-growth areas, particularly data centers, could mitigate risks associated with its weaker divisions. Sustained efforts to innovate and adapt to market demands are essential for capitalizing on emerging opportunities in technology sectors increasingly focused on energy efficiency and sustainable solutions. AMD's commitment to innovation and partnerships will be pivotal as it navigates these challenges. Current developments surrounding AMD illustrate a mixed narrative, with certain sectors performing well while others struggle. Despite the setbacks, the company's emphasis on advancing its data center capabilities, aided by partnerships with industry leaders, establishes a foundation for potential recovery and growth. AMD is leveraging its 122% growth in data center revenue to challenge Nvidia in AI and high-performance computing. Partnerships with Microsoft and Meta show AMD is serious about taking market share, positioning itself as a real competitor in a booming sector. If it continues this momentum, its data center business could redefine AMD's future. However, a 69% drop in gaming revenue is a clear red flag. AMD needs to stabilize this segment fast while doubling down on its data center gains. For investors, this is a big moment -- AMD's ability to execute in high-growth areas while addressing weak spots will determine if it rebounds or continues to slide. Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.

Should You Buy the Dip in AMD Stock? | The Motley Fool

Following a sharp rebound in 2023, the capital markets have been scorching hot this year -- with the S&P 500 and Nasdaq Composite gaining 24% and 30%, respectively, as of market close on Dec. 20. Of course, this year's hottest investment theme -- artificial intelligence (AI) -- remained unchanged from 2023. Within the AI realm, semiconductor stocks have generated some of the most lucrative returns over the last couple of years. But one stock that hasn't seemed to captivate investors is Nvidia's chief rival, Advanced Micro Devices (AMD 1.36%). As of this writing, shares of AMD have fallen by 19% this year. When compared to Nvidia's return of 172%, investing in AMD looks like a tough sell. Below, I'll break down some of the factors that are influencing AMD's price action and assess if now is a good opportunity to buy the dip in AMD stock as it trades near a 52-week low. In late October, AMD announced financial results for its third quarter. The company's revenue of $6.8 billion only represented an increase of 18% year over year. While this might look mundane compared to other AI darlings, I'd encourage investors to look a little deeper. AMD reports revenue into four major categories: data center, client, gaming, and embedded. During the third quarter, AMD's gaming and embedded segments declined by 69% and 25%, respectively, year over year. On the other hand, the company's client segment increased by 29% while the data center business rose 122% year over year. With such a wide disparity among its various businesses, AMD's total revenue growth of 18% looks more reasonable. Furthermore, one aspect I think is going overlooked is that AMD's data center business is growing at a commensurate pace to Nvidia's. This is not a dynamic I would discount, and below I'll detail why. Nvidia's biggest advantage in the AI arms race may not be its technological chops. Rather, for the better part of a year Nvidia did not have any competition in the graphics processing unit (GPU) market. This first-mover advantage allowed Nvidia to achieve enormous levels of pricing power as demand for chip ware steadily rose on the heels of rising investment in generative AI. However, AMD's foray into the data center GPU market is clearly beginning to bear fruit. Both Microsoft and Meta Platforms, which are known customers of Nvidia, are also complementing their chip stack with AMD's MI300 accelerators. Considering AMD has new lines of GPUs scheduled to release next year and through 2026, I'm cautiously optimistic that the company will be able to eat away at Nvidia's commanding market share over the long term as companies seek to differentiate their AI investments rather than relying on a singular provider. One valuation metric that can be helpful when determining if a stock is fairly priced is the PEG ratio. Unlike the price-to-earnings multiple, the PEG ratio looks at the growth of earnings over a forecast period (i.e., five years). Generally speaking, a PEG lower than 1 implies that a stock could be undervalued. Right now, AMD's PEG ratio is 0.31 -- implying the stock is trading at a deep discount. Taking this a step further, AMD currently trades at a forward price-to-earnings (P/E) multiple of roughly 24 -- essentially in line with the S&P 500. These valuation trends could imply that investors have lost enthusiasm over AMD and no longer view the company as a lucrative growth opportunity. Looked at a different way, investors appear to be pricing an investment in AMD as no different to that of dumping some cash into the S&P 500. To me, the sour sentiment around AMD is largely unwarranted. While the company is indeed lagging in some areas of the business, its potential in the GPU space alone should more than make up for the losses exhibited in non-core operations such as gaming. Investors currently have a rare opportunity to buy a leading chip company at some of its lowest prices in quite some time. In my eyes, AMD is a bargain at its current valuation and I think now is an incredible opportunity to take advantage of its sell-off and prepare to hold for the long run as its momentum is just beginning.

AMD's Stock Is Trading Near Its 52-Week Low. Is Now the Time to Buy? | The Motley Fool

Amid all the hype about the tech sector and artificial intelligence (AI) this year, one stock that has surprisingly not done well is Advanced Micro Devices (AMD -2.89%), aka AMD. As of Monday, shares of the chipmaker were down 15% year to date. It's now near its 52-week low, despite its long-term potential. Could this be a great time to invest in AMD stock? AMD's peer Nvidia (NVDA -1.14%) has been a scorching hot buy over the years and is now among the three most valuable companies in the world. Its market cap of $3.2 trillion is more than 16 times AMD's $200 billion. AMD stock trades at more than 110 times its trailing earnings. And it's not just its valuation that looks worrisome: AMD's revenue growth rate has been modest recently when compared to Nvidia's. It has been a tale of two vastly different growth stocks. While many businesses have been taking off due to AI-fueled demand, AMD has been a bit underwhelming in that regard. For it to win back growth investors, it will need a catalyst. The company says it is on track for record revenue for 2024, and that it's experiencing "significant growth" in multiple areas of its business. Yet investors may be unimpressed given how much growth they've been seeing from other tech companies this year. There is some good news, however: AMD anticipates an acceleration of its growth rate for the fourth quarter. Management projects sales of around $7.5 billion, which would be an increase of 22% from the prior-year period. AMD is aggressively pursuing a piece of the AI chip market, and there could be room for it to steal some market share from Nvidia. Companies may be seeking cheaper chip options or simply looking to diversify their supply chains so that they're not overly dependent on a single vendor. According to AMD, the MI325X chip it launched recently is 30% faster than Nvidia's H200. If that's the case, it could offer some competition to the GPU leader, provide AMD with some strong top- and bottom-line growth, and potentially give the stock a much-needed boost in 2025. Although it hasn't been a good investment in 2024, AMD may be an underrated stock to hold in the new year. With its new chip rolling out to customers and AMD anticipating an acceleration of its growth rate, the pieces are there for the stock to do better in 2025. While it may look like an expensive stock to buy based on its trailing metrics, it's trading at a forward price-to-earnings multiple of 25 (based on analysts' consensus expectations), which would make it a much more comfortable purchase for long-term investors. Given AMD's potential in the AI chip market, it may even be one of the better stocks to buy right now as investors generally appear to be overlooking it, and that could prove to be a mistake.

This AI Stock Hit a New Low in Wednesday's Sell-Off: Is It Time to Buy? | The Motley Fool

Below I'll explore why AMD hitting its lowest share price in more than a year should be a dinner bell instead of a warning bell. Being in the right place at the right time isn't always enough for a company to ride the coattails of a hot trend. AMD is experiencing a surge in demand for its AI processors but has other segments of its operations stuck deeply in reverse. Revenue for its data center segment soared 122% in its latest quarter. AMD may not be the first name that investors think about when considering the pick-and-shovel plays of the AI revolution, but heavy demand is lifting all chip ships. You need new and powerful processors for the resource-intensive new normal of AI video editing and image generation, content creation, and graphics performance. It also has to be kind on the battery life when AI is being worked on using portable PCs. AMD may have been slow to catch on to the AI trend, but its recent success is making a difference to its overall business. The $3.5 billion that it delivered in data center revenue in the third quarter is more than half of its $6.8 billion in total revenue. The problem for AMD is that some of its former revenue drivers can't seem to shift out of reverse. Its gaming segment has seen its business plummet 69% over the past year, largely due to a sharp decrease in its semi-custom revenue. AMD's larger embedded segment business has experienced a 25% year-over-year drop in revenue. One business that's positive outside of its data center boom is its client segment, clocking in with a 29% increase in revenue for its latest quarter. The end result of all of these moving parts is that total revenue rose a modest 18% in AMD's third quarter. It's a far cry from the top-line jumps that the more obvious AI plays are reporting. Natural leader and market darling Nvidia experienced a 94% increase in its latest fiscal quarter. However, it doesn't mean that AMD deserves to be discarded in the land of lost toys this holiday season. As bad as AMD has performed this year -- with the shares trading 18% lower in an otherwise buoyant 2024 -- the out-of-favor semiconductor icon is still doing a lot of things right. Its bottom line has topped analyst expectations in all three quarters so far this fiscal year. Margins are widening, and adjusted net income climbed 31% in its latest report. AMD's 18% increase on the top line is its strongest year-over-year move in two years, and it's starting to step on the gas. Its own guidance calls for revenue to grow by 22% for the current quarter. Analysts see revenue rising 27% for all of next year. The bottom line should continue to grow even faster. AMD is currently trading for 24 times forward earnings. It's not a cheap multiple, but the stock is more than reasonable for a legitimate AI play that's starting to muscle its way back into the spotlight. If AMD isn't on your investing radar, maybe it deserves to be at this point with such a compelling entry point.