Investing

Down 50%, Is This the Best AI Stock to Buy Now?

Rich Duprey

Published: January 17, 2025 1:20 pm

For an artificial intelligence chipmaker posting such robust sales growth, Advanced Micro Devices (NASDAQ:AMD) is not getting any recognition for its achievements.

Despite data center revenue where AMD’s AI business is housed rising at triple-digit rates in the third quarter and by 25% sequentially, the chipmaker’s stock is down 20% since reporting earnings last October. Share have been cut almost in half from its 52-week high hit in July.

Maybe Nvidia (NASDAQ:NVDA) has set the bar so high that anything less is a disappointment, but it appears Advanced Micro Devices could be the best AI stock to buy now.

Trending Video

▶️

Making the best of the AI opportunity

The semiconductor stock reported total sales of $6.8 billion, up 18% year-over-year and ahead of management’s guidance, while profits surged 158% to $771 million, or $0.47 per share. AMD believes it gained share in the central processing unit (CPU) market with its Epyc server chips, while it saw strong growth in the AI graphics processing unit (GPU) market. AI GPUs generated $1.5 billion in sales.

Admittedly, Nvidia reported almost $31 billion in data center sales in the third quarter, or 10 times more than AMD, but AMD was starting from essentially zero last year. It was also able to steal market share from Intel (NASDAQ:INTC) in the PC market, up 29% from last year and 26% higher than the second quarter.

The chip stock also gave investors a healthy outlook for Q4, guiding to sales of $7.5 billion, a 21% gain of last year’s fourth quarter. Non-GAAP gross margins were also expected to widen to 54% from 51%. 

Wall Street expects AMD to grow earnings at a 39% annual clip for the next five years, ahead of Nvidia’s expected 35% growth. And despite trading at better valuations than its rival, AMD stock continues to fall. 

Getting its nose under the tent

Certainly, Nvidia gets the benefit for being first to market with these advanced AI chips and sucking most of the oxygen out of the room. Comparing their growth rates, NVDA enjoyed sales tripling early on while AMD is only seeing sales double or more. And though Nvidia’s growth rates have fallen, they were still up 112% in Q3. So it’s not like Advanced Micro is really gaining much ground on the leader, and the market seems to be taking it out on AMD’s stock.

That smells of opportunity for investors. AI is still in its infancy with a long and broad road of growth ahead of it still. It suggests there is plenty of room for multiple winners in the space, and AMD could win points and customers in 2025.

The latest Blackwell chips are reportedly still suffering from overheating problems, causing its biggest customers like Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), and Microsoft (NASDAQ:MSFT) — all of whom ordered $10 billion or more in chips — to cut orders or accept Nvidia’s older AI accelerators as a substitute.

According to a report in industry site The Information, Microsoft’s AI partner OpenAI changed its order for GB200 racks with 50,000 Blackwell chips for the older Hopper chips instead when the new versions were delayed.

Because AMD’s chips are cheaper to begin with, there is a good chance for it to steal some customers away. It also added two AI shops to its portfolio last year, acquiring AI model lab Silo.ai and data center systems specialist ZT Systems. They plugged some holes AMD had in its business and should help it gain ground going forward.

Key takeaway

The chipmaker trades at 24 times next year’s earnings estimates, well below its historical average. And though its P/S ratio of 8 is high compared with its 10-year average, over the last five years it is at one of the lowest points.

With Advanced Micro Devices stock down sharply, but exhibiting strong sales and profit growth, it could be the best AI stock to buy today.