AMD’s AI Advantage: Why This Dip Could Be Your Last Chance to Buy

Stocks to buy

AI stocks haven’t been without their share of turbulence of late. Whether we’re talking about semiconductor company Advanced Micro Devices (NASDAQ:AMD) stock or Nvidia (NADSAQ:NVDA), which is making a run toward becoming the world’s most valuable company, this road higher isn’t without bumps.

AMD has seen such a dip, recently falling more than 18% from its highs. It’s clear some investors may be feeling the uncertainty of how much of AMD’s future growth will be driven by AI chips, given Nvidia’s recent announcements at its GTC conference.

That said, I do think AMD has robust long-term growth catalysts to consider. March did see a slowdown in AI stock enthusiasm, with concerns around GPU demand proliferating. However, it’s unclear how long this trend will last.

Here’s why I still think AMD is a stock to consider right now.

AMD Stock Has Been on Fire

Amid rising AI demand for chips, semiconductor stocks have surged, driven by increased GPU revenues tied to AI operations. Nvidia, a GPU leader, saw a 296% stock surge over the past year due to robust chip sales. Yet, rivals like AMD offer promising investment opportunities with significant room for growth.

In December, AMD unveiled its MI300X AI GPU, aiming to challenge Nvidia and attract significant clients like Microsoft and Meta Platforms. With its PCs more driven and innovated by AI, this has aligned investor anticipation for increased AI-integrated PC orders.

Investors also expect AMD stock to reach $7 in earnings per share over the next three years, representing a doubling in the company’s stock price by 2026. If analysts are correct in their view, this could be a stock with some sustainable tailwinds, and one that’s not overly-expensive, despite its current sky-high valuation multiple.

Partnership with Sony

Advanced Micro Devices partnered with Sony Semiconductor Solutions to provide “adaptive computer technology” for its LiDAR system. This technology promises faster data processing and enhanced accuracy, surpassing competitors in Sony’s evaluation. Takayoshi Ozone of Sony Semiconductor Solutions expressed confidence in setting new benchmarks with AMD’s technology integration.

Yousef Khalilollahi, AMD’s corporate vice president & general manager, underscored LiDAR’s rapid advancements and diverse applications, affirming AMD’s commitment to innovation through strategic collaborations. Takayoshi Ozone, Sony Semiconductor Solutions Corporation’s General Manager of the Automotive Development Department, highlighted the partnership’s role in setting new LiDAR performance and reliability standards. 

Leveraging AMD’s adaptable computing solutions, Sony’s LiDAR reference design aims to enhance SPAD ToF Depth sensor capabilities, driving LiDAR technology adoption across industries.

Despite its high earnings multiple of 337.9 as of Q4 2023, AMD maintains financial stability with manageable debt and ample liquid assets, enabling investments in new technologies. However, analysts caution about downward revisions in earnings forecasts, urging investors to consider this aspect before making decisions.

AMD Stock is Still a Buy

AMD’s AI and PC-related growth catalysts may take time to materialize, though there is always the potential for quicker uptake than many investors are currently pricing into the company’s stock. I think this is a stock investors will need to watch closely in the coming quarters, with earnings growth likely to be tantamount to how the company trades moving forward.

AMD’s price-sales ratio of 14-times is higher than its 5-year average of around 7-times, suggesting there is plenty of multiple expansion already priced into this company. So, there’s risk here.

However, I do think the company has plenty of upside given the growing market for high-performance chips and the company’s positioning as a lower-cost chip provider in other growing segments. This dip may be one worth buying.

On the date of publication, Chris MacDonald did not have (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 Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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