Among investment opportunities in the field of artificial intelligence, semiconductor stocks have become the first choice. NVIDIA It's been the most popular among chip stocks for the past two years, and for good reason. The company's graphics processing units (GPUs) play an important role in generative AI development, and companies around the world seem happy with what Nvidia has to offer.
While it remains a solid opportunity at the intersection of semiconductors and artificial intelligence, I see another stock that looks better value right now. Below, I will analyze the current price trend in detail AMD (NASDAQ:AMD). I'll explain why I think the company is well-positioned for years of strong growth despite stiff competition from Nvidia.
The chart below shows the price action between AMD and some leading semiconductor stocks as well as VanEck Semiconductor ETF in the past year. Unlike its peers, AMD's stock price has fallen sharply, with the stock hovering near its 52-week low as of January 14.
Given the importance of chips to the development of artificial intelligence, what's causing AMD stock to sell off even as its rivals receive overwhelming support from investors?
From what I can tell, the bad sentiment surrounding AMD boils down to growth, or lack thereof. Currently, the company's revenue growth is 18%. It pales in comparison to Nvidia, which is seeing nearly triple-digit sales growth. However, I think investors are missing the forest for the trees.
While AMD's overall revenue growth may appear lackluster when compared to its competitors, it's important to look at the finer details before drawing conclusions. The company divides its revenue into four broad categories: data center, client, gaming and embedded.
Currently, the company's gaming and embedded businesses are not growing at all. Unfortunately, this lack of growth is cannibalizing an area of business that is booming. According to the company's latest financial report, the data center business grew 122% year over year, almost the same as the growth of Nvidia's data center GPU unit.
Despite its impressive growth, AMD's price-to-earnings-to-growth (PEG) ratio is only 0.3. That suggests analysts may be overlooking the strength of the company's data center business and thus lowering its growth forecasts. Note that a stock with a P/E ratio below 1 generally means it is undervalued.
It's going to be an interesting year for the chip space. Investors and Wall Street analysts will be weighing every possible statistic about Nvidia's new Blackwell GPUs - which are reportedly already sold out within the next 12 months. On the surface this is great news for Nvidia, but I think there's a huge opportunity looming behind the scenes for AMD.
That said, these supply and demand dynamics present an interesting opportunity for AMD, as the company can compete on price and offer the best solution when businesses simply can't get their hands on Nvidia's GPUs. This idea is not unreasonable.
A big driver for AMD last year was significant adoption of its MI300 accelerator by hyperscale enterprises, including Oracle, Microsoftand meta platform. While these companies also rely heavily on Nvidia's GPU architecture, they have moved to diversify their AI infrastructure by complementing their respective Nvidia stacks with AMD-developed products.
Considering AMD already has a slew of follow-on chips scheduled for release in 2025 and 2026, I think the company has a good chance of capitalizing on continued demand fluctuations across the semiconductor spectrum by offering multiple alternative solutions to Nvidia's product suite -- all of which All at a more reasonable price point.
To me, investors should focus on the growth trends in AMD's data center GPU space. If the company can continue to accelerate earnings in this particular part of its business, then I think it's only a matter of time before investors start to notice its scale, and the stock price could start to breakout.
I think AMD represents a compelling long-term opportunity for AI investors, and believe continued subdued price action makes now a favorable time to buy the stock.
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Randi Zuckerberg is the former director of market development and spokesperson for Facebook, the sister of Meta Platforms CEO Mark Zuckerberg, and a board member of The Motley Fool. Adam Spatacco works at Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions and recommendations in Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, Oracle, and TSMC. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.
This artificial intelligence (AI) stock is an absolute bargain now and could soar in 2025 Originally published by The Motley Fool