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2024.07.10 10:50
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3 Reasons Why Advanced Micro Devices Stock Is Still a Lucrative AI Bet

Advanced Micro Devices (AMD) is a lucrative AI bet despite not seeing the same rally as its competitor Nvidia. The AI market remains ripe for new entrants, and AMD's entrance into the AI chip market is essential. AMD is ramping up to compete with Nvidia, Intel, and Qualcomm, and its stock is cheaper than Nvidia's. Investors should consider buying AMD, especially at its current discount. (49 words)

Advanced Micro Devices (NASDAQ:AMD) is not seeing the same rally as its chip counterpart Nvidia (NASDAQ:NVDA). Nvidia’s share price has rallied more than 154% since the start of the year, while Advanced Micro Devices stock appears relatively flat, only appreciating 16.6% for the year as of last Friday’s trading session.

It’s clear the market is betting on Nvidia to continue to lead the market in terms of churning out new and better AI accelerator chips. However, investors should not be underestimating the potential impact of AMD’s entrance into the burgeoning AI chip market.vBelow are 3 reasons Advanced Micro Devices stock remains a lucrative AI bet.

AI Market Remains Ripe for New Entrants

Financial markets have been reeling from the so-called “AI craze” since earlier last year. Startup OpenAI‘s release of ChatGPT, a generative chatbot, captured the minds and imaginations of market watchers and average citizens alike.

Now enterprises are racing to incorporate the new technology into their products to both create business efficiencies as well as value for shareholders.

Nvidia is the leader in the AI chip market. The chipmaker has the most advanced chips as of now, and its CUDA software for developers has been extremely successful in helping its GPU deliver top-notch performance.

Because of its dominance, Nvidia can command a premium price for its chips. Microsoft (NASDAQ:MSFT), for example, is planning to spend more than $50 billion on capital expenditures during its current fiscal year, and a lot of that is going to purchase Nvidia’s accelerators.

This is where AMD’s entry into the market is almost essential. AMD’s MI300 and MI325X accelerators offer a balance of price and performance, appealing to enterprises not focused on the latest technology.

Advanced Micro Devices Stock Looks Good Here

AMD is ramping up to compete with not just Nvidia but also Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM).

During the Computex conference last month in Taipei, Taiwan, AMD CEO Lisa Su solidified her firm’s commitment to AI.

“AI is our number one priority and we’re at the beginning of an incredibly exciting time for the industry as AI transforms virtually every business, improves our quality of life, and reshapes every part of the computing market,” Su said.

The chipmaker unveiled the Ryzen AI 300 series for next-generation AI laptops, which would compete more directly with Intel and Qualcomm. AMD also announced the Ryzen 9000 series desktop CPUs which could handle AI workloads.

Along with MI325X which will enter the market at the end of the year, AMD also gave the road map for successive accelerators, including the Instinct MI350 series for 2025 and the Instinct MI400 series for 2026.

Intel is the third major competitor in the race for AI accelerators, yet its Gaudi 3 processors are behind in certain aspects of performance and hardware, including a smaller amount of high-bandwidth memory than AMD’s MI300 chip. This could give AMD some breathing room as it catches up with Nvidia.

AMD Is Cheaper than NVDA

Nvidia share price has more than double in 2024, so much so that even at one point the chipmaker was the world’s most valuable company, and this rally has led to comparable increase in valuation as well.

Nvidia now trades at 43.3x forward earnings, almost twice the valuation the chipmaker garnered six months ago. AMD, in comparison, trades at a 42.7x forward earnings, making AMD’s stock slightly cheaper.

If we look at sales multiples, there is an even larger difference. AMD trades at 10.1x forward sales, while Nvidia trades at more than twice that sales multiple.

That is all to say, AMD has a major role to play in this AI chip race, and investors looking to get in on the “craze” should consider buying AMD, especially when it is currently trading at such a discount to Nvidia.

On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

Technology, Artificial Intelligence, Semiconductor