Is Now the Right Time to Invest in AMD Stock?

In a year filled with excitement around the tech sector and advancements in artificial intelligence (AI), one company that has surprisingly struggled is Advanced Micro Devices (AMD). As of Monday, AMD's stock was down 15% since the start of the year, bringing it close to its 52-week low. Given this trend, many are questioning whether now is a good time to invest in AMD.

Factors Behind AMD's Stock Performance

One primary reason AMD hasn't performed well compared to its competitors is its industry rival, Nvidia. Nvidia has gained considerable attention in the market and is currently one of the most valuable companies, boasting a market cap of $3.2 trillion, which is over 16 times AMD's $200 billion valuation.

Additionally, AMD's stock is trading at a high price-to-earnings ratio, over 110 times its trailing earnings. This premium valuation, combined with AMD's relatively slow revenue growth compared to Nvidia, has left investors feeling uncertain about AMD’s prospects.

While other tech firms have seen accelerated growth thanks to AI, AMD has not been able to keep pace. For the company to regain favor with growth investors, a strong catalyst is necessary.

On a more optimistic note, AMD is projecting record revenue for 2024, citing significant growth in various sectors of its business. However, this growth may not be enough to impress investors who are accustomed to seeing major advancements from other tech companies this year.

Management at AMD is anticipating a growth acceleration in the fourth quarter of this year, forecasting sales of around $7.5 billion, which marks a 22% increase from the same period last year.

Future Outlook: The Role of AMD's New Chip

A significant factor that could influence AMD’s stock performance next year is its push into the AI chip market. There is a potential opportunity for AMD to capture market share from Nvidia as companies may seek more cost-effective chip alternatives and aim to diversify their supply chains.

AMD claims that its newly launched MI325X chip is 30% faster than Nvidia's comparable H200 chip. If this claim holds true, it may offer AMD the competitive edge needed against Nvidia, leading to substantial growth in revenue and profits, and possibly a resurgence in stock value by 2025.

Should You Buy AMD Stock Now?

While AMD has not been a strong investment this year, it may be an undervalued stock worth considering for long-term investors. With the upcoming rollout of its new chip and a predicted acceleration in growth rates, AMD could indeed perform better moving into 2025.

Despite its seemingly high valuation currently, AMD's forward price-to-earnings ratio stands at around 25 based on analyst expectations. This makes it a more appealing option for long-term holding. Moreover, with AMD’s potential in the AI chip sector, investors might find that passing on this opportunity could be a mistake.

AMD, Nvidia, Investment