AMD Stock: Undervalued Semiconductor with Strong AI Potential

Shares of AMD have seen a significant decline over the past year, marking it as a notable case among semiconductor stocks that have lost their appeal among investors.

When looking for investment opportunities in the artificial intelligence (AI) sector, semiconductor stocks have emerged as a popular choice. Nvidia has gained immense attention over the last couple of years, driven mainly by its graphics processing units (GPUs) that are essential for generative AI development. Companies worldwide are eager to tap into Nvidia's offerings.

While Nvidia remains a solid choice, another stock appears to be offering better value at this time. This article will analyze the current situation of Advanced Micro Devices (AMD) and discuss why it is positioned for considerable growth in the coming years, despite facing tough competition from Nvidia.

What's Happening with AMD Stock?

The recent price movements of AMD stocks compared to other leading semiconductor companies, as well as the VanEck Semiconductor ETF, show a downward trend for AMD. As of January 14, the stock price is sitting close to a 52-week low, which is a stark contrast to its peers.

Considering the vital role that chips play in AI advancements, it raises the question of why AMD stocks are declining while other competitors receive substantial investor backing.

The downturn in sentiment surrounding AMD appears to stem from concerns about growth—or rather, the lack thereof. Currently, AMD's revenue is growing at a modest rate of 18%. In comparison, Nvidia's almost triple-digit sales growth makes AMD's figures seem underwhelming. However, this comparison might overlook the company's potential.

AMD's Growth Potential

While AMD's overall revenue growth might seem low relative to its rivals, it is critical to delve deeper into the specifics. The company categorizes its revenue into four primary segments: data center, client, gaming, and embedded.

The gaming and embedded segments are currently stagnant, which affects the areas of the business that are performing well. According to the latest financial report, AMD’s data center operations have grown by an impressive 122% year-over-year, comparable to Nvidia's data center GPU growth.

Despite this significant achievement, AMD has a price/earnings-to-growth (PEG) ratio of just 0.3. This low ratio suggests that analysts might not fully grasp the strength of AMD’s data center business, which is potentially leading to underestimated growth projections. Generally, a PEG ratio below 1 indicates a stock is undervalued.

Why AMD Stock Could Accelerate in 2025

The upcoming year promises to be an eventful one in the semiconductor industry. Investors and analysts will closely watch the statistics surrounding Nvidia's latest Blackwell GPU, which is reportedly sold out for the next year. Although this news favors Nvidia, it simultaneously presents AMD with significant opportunities.

Specifically, the dynamics of supply and demand create an opening for AMD, allowing it to compete on price and deliver optimal solutions for businesses struggling to acquire Nvidia's GPUs. This scenario is realistic given the current market conditions.

Another key driver for AMD is the recent adoption of its MI300 accelerators by major players like Oracle, Microsoft, and Meta Platforms. Although these companies already utilize Nvidia’s GPU technologies, they are diversifying their AI infrastructure by integrating AMD's products alongside Nvidia's offerings.

Looking ahead, AMD plans to introduce a series of successor chips in 2025 and 2026. This strategic move positions AMD to capitalize on the evolving demand within the semiconductor market, providing alternatives to Nvidia’s product range at more competitive prices.

For investors, focusing on the growth trends surrounding AMD’s data center GPU segment is essential. If the company successfully boosts this part of its business profitably, it is likely that investor attention will shift, leading to potential stock growth.

Overall, AMD represents a strong long-term investment for those interested in the AI sector, and the current depressed stock prices create an attractive buying opportunity.

AMD, AI, Semiconductors