AMD Stock Is Down 29%. Should You Buy the Dip?

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Down 29% from its all-time high, Advanced Micro Devices (NASDAQ:AMD) stock is at a crossroads. The artificial intelligence chipmaker is introducing new advances to its technology that offer the potential to take market share from industry leader Nvidia (NASDAQ:NVDA), yet so far AMD has not seen the traction we would expect.

Is there just too much hype around Advanced Micro Devices’ rival to break through the noise or is there a more fundamental problem the chipmaker’s investors need to recognize. Let’s take a closer look to see whether you should be buying AMD stock on the dip or sell it and back the horse already way out in front.

Slower Than Expected Growth

Although Advanced Micro Devices is seeing significant growth in its AI chip offerings, it is far more muted than you would expect. Businesses are racing to put their data in the cloud and incorporate artificial intelligence into their operations. Both trends are driving AI technology forward.

Data center demand is soaring for advanced computer chips to handle the complex processing needs AI demands. While that has played to Nvidia’s strengths so far, AMD countered with its MI300X chip that offers more power at a lower price than its rival’s popular H200 chip.

Likely that explains why AMD’s data center revenue spiked 80% higher in the first quarter, jumping to $2.3 billion from the year-ago period. The chipmaker was rewarded with segment operating profits that more than tripled to $541 million.

On the surface that’s fantastic, indicating Advanced Micro Devices is eating into Nvidia’s business and not ceding the tech star any ground. Yet there is a worrisome trend too.

While year-over-year growth is phenomenal, sequentially its less so. Data center revenue only grew a meager 2% from last year’s fourth quarter and operating profits actually declined 19%. In comparison, Nvidia goes from strength to strength.

Data center revenue skyrocketed 427% year-over-year, hitting a record high of $22.6 billion, and surged 23% sequentially, while its operating income declined just 4%.

With both companies seeing profits drop likely reflecting some seasonality but also the price war erupting, Nvidia is still keeping more of its sales as profits than AMD.

Looking forward, AMD is only expecting total sales to grow 6% in the second quarter to $5.7 billion while Nvidia is expecting revenue to double year-over-year.

The Best Is Yet to Come

Although that appears troublesome, it’s not quite that bad. Wall Street actually expects AMD to begin accelerating growth in the back half the year.

It estimates 15% year-over-year and sequential growth in the third quarter, with fourth-quarter revenue picking up to 23% annual growth and 15% sequential growth. It’s not quite supercharged but the pace is quickening.

Further, AMD is looking for data center revenue to exceed $4 billion this year, an increase from its previous guidance of $3.5 billion. As it sees increased customer engagement, I’d expect that figure to continue rising as the year progresses. It’s likely the better value customers receive for the impressive power provided that is driving this engagement.

It could get even better. AMD plans to introduce its third-generation Ryzen AI chip for PCs next month. Later this year it will release its fifth-generation EPYC data center chip and in the fourth quarter the Instinct MI325X accelerator chip will become available.

AMD has a 33% share of the data center market and growing. Two years ago it was at 27% and it ended 2023 at 31%. That shows the chipmaker is taking share from Nvidia but also Intel (NASDAQ:INTC), another big player in the data center chip market. 

New chips will be released on a regular basis going forward, much as occurred during the early days of PCs when AMD and Intel battled for desktop supremacy.

So Buy the AMD Stock Dip or Sell?

Advanced Micro Devices has all the pieces in place to grow into an even more formidable competitor to Nvidia.

Of course, its rival is not standing still and continues to innovate as well. It just announced it own next-generation chip, Rubin, before the Grace Blackwell superchip even hit the market.

Fortunately for investors, this doesn’t have to be an either-or proposition. You can buy both AMD stock and NVDA stock and feel comfortable your investment will appreciate considerably in the years to come.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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