Should one consider purchasing AMD Stock at the current moment?
The advent of mainstream AI has given a significant boost to shares of semiconductor giant Advanced Micro Devices (AMD 1.89%). Back in December, the stock was at its 52-week low of $116.37, but come 2024, it hit a high of $227.30.
Following this record high in March, AMD's share price has seen a downturn, and the stock was down about 6% in 2024 by Nov. 18.
Given this price decrease, is the AI hype all over? Or is this stock's fall an indicator that now's a prime time to invest? Let's delve deeper into the company to aid in your decision-making process.
AMD's success in AI
Initially, AMD was primarily associated with semiconductors for the gaming industry. But under CEO Lisa Su's leadership, the chipmaker is swiftly transforming into an AI powerhouse.
Su, whose 10th anniversary as CEO is this year, sees immense potential for the company: "In the coming years, we foresee significant growth opportunities across our data center, client, and embedded businesses driven by the nearly insatiable demand for more compute."
Q3 2024
AMD's numbers support Su's claims. Over the past year, firms running data centers, which host cloud computing servers for AI, started incorporating AMD's chips into their systems, leading to a remarkable increase in its sales to this market.
$3.5 billion
In its third quarter, ended Sept. 28, the data center segment revenue experienced a whopping 122% year-over-year surge, reaching a record $3.5 billion. This segment accounted for more than half of the company's total third-quarter sales of $6.8 billion, contributing to AMD's 18% year-over-year growth.
122%
AMD's data center clients include tech titans like Microsoft, Meta Platforms, and Uber. Even Meta alone purchased 1.5 million units of AMD's EPYC computer processor for its cloud servers.
Rising demand for AMD's AI solutions
Q2 2024
The third-quarter success in the data center is a stark contrast to 2023, when sales for this market represented only $1.6 billion of its $5.8 billion in total third-quarter revenue. AMD's ability to swiftly tap into the sudden demand for AI-related semiconductor products demonstrates that its transformation into an AI powerhouse is progressing well.
$2.8 billion
The need for chips to power AI is not limited to data centers. The client segment, representing goods sold to the personal device market (including chips for laptops), is also witnessing robust sales growth.
115%
In the third quarter, the client segment's revenue marked $1.9 billion, up by 30% year-over-year. Together, the data center and client divisions accounted for 80% of third-quarter revenue.
Management anticipates that this AI demand will fuel even higher growth during the fiscal fourth quarter, projecting quarterly revenue to reach around $7.5 billion, a 22% year-over-year increase from $6.2 billion.
Q1 2024
AMD's AI-focused transformation
$2.3 billion
As Lisa Su suggested, this AI demand is expected to persist for years, which is why her company is increasing its investments in acquisitions. It recently acquired Silo AI in August to help clients integrate AMD hardware into their AI tech, and plans to acquire ZT Systems, an expert in implementing AI-related infrastructure.
80%
Due to its strong financial performance, the bottom line is benefiting as well. The third-quarter net income saw a 158% year-over-year climb to $771 million. This lifted diluted earnings per share (EPS) to $0.47, a 161% improvement from the previous year.
With AI demand showing no signs of abating, and considering AMD's growing strength in capturing a portion of this market, the company is an excellent long-term investment. Now, the question is whether this is the right time to invest.
Q4 2023
One factor to consider is the company's forward price-to-earnings ratio (P/E ratio), which helps evaluate a stock by revealing how much investors are willing to pay for every dollar of earnings.
$2.3 billion
AMD stock is currently trading around 42 times forward earnings, a decline from the valuations it commanded earlier in the year. Earlier, these valuations were even more elevated, surpassing the forward P/E for AI-focused company Nvidia.
38%
AMD's share price dropped recently following management's announcement of job cuts in departments no longer prioritized to allocate resources for AI-related ventures. With the price dip, the forward P/E has now dropped below Nvidia's. You could wait for shares to drop further, but at its current valuation, it's more reasonable now, making it a good time to consider investing in AMD.
After demonstrating significant growth in its AI-related business, with data center revenue surging by 122% in Q3 2024, AMD now has attractive valuations for investors. The company's stock is currently trading at a lower forward P/E ratio than AI-focused competitor Nvidia, making it an appealing long-term investment opportunity for those looking to invest in money in the finance sector, given the persistent demand for AI solutions.
