Is it too late to buy AMD stock?
The company had a weak quarter, with its stock potentially overvalued compared to its peers.
With the artificial intelligence (AI) boom last year, all attention was focused on chip stocks. These companies are developing the hardware needed to train AI models and complete intensive generative tasks, which are critical to the future of the market.
What stands out is advanced micro devices (AMD -2.38%)It holds the second largest market share in graphics processing units (GPUs), chips that can run rigorous workloads for activities such as gaming, AI, and cryptocurrency mining.
Analysts have repeatedly compared AMD to market leaders. nvidia, it is doubtful whether the industry will be able to enjoy similar growth. Nvidia’s stock price has soared 209% over the past year along with surging profits as it dominates the AI chip sector. AMD is still in the early stages of its AI journey, and its stock price is up 28% in the same period.
AMD initially enjoyed significant stock growth thanks to Wall Street’s belief that it would succeed Nvidia, but as expectations about the company’s potential waned, AMD’s stock price has fallen about 16% over the past three months.
So is it too late to buy AMD stock, or can the business thrive in the long term?
We are experiencing difficulties amidst increasing competition.
AMD announced its first quarter 2024 earnings results on April 30. The company reported non-GAAP (adjusted) earnings per share of $0.62, beating analysts’ forecasts by $0.01. Meanwhile, revenue rose 2% year over year to $5.5 billion, about $20 million more than expected. That’s not bad, but the results weren’t enough to pique investor interest, with AMD’s stock price up less than 1% following the earnings release.
The company’s stock has struggled compared to Nvidia, with revenue surging 262% in the same quarter and beating Wall Street expectations by more than $1 billion.
The first quarter of 2024 wasn’t all bad news for AMD. That’s because the two highest-grossing segments (Data Centers and Clients) recorded revenue growth of more than 80%. However, the gaming and embedded segment hindered sales growth, with sales plummeting 48% and 46% in the quarter.
Breaking Nvidia’s roughly 90% market share in the AI GPU space will be difficult. But AMD never gave up, unveiling a new AI chip earlier this month. The company’s MI325X accelerator is expected to be available in the fourth quarter of 2024. Meanwhile, AMD has shifted to releasing new chip designs every year, which could help it remain competitive.
Is AMD a better choice than its competitors Nvidia or Intel?
AMD’s stock price is up more than 3,600% over the past decade, undoubtedly making it one of the best long-term buys in recent years. However, changes in the market have made it difficult to pick stocks in 2024 compared to their competitors.
Nvidia’s leadership in the AI chip market at a time when demand for GPUs is surging suggests that its stock is a reliable way to invest in developing markets. Its dominance in the AI field will not be shaken anytime soon. meantime, intelAMD’s other competitor is expanding its chip manufacturing division. This move could potentially make Intel a preferred manufacturer for many companies, allowing it to benefit significantly from the growing demand for AI chips.
Meanwhile, AMD feels like it’s in a no-man’s land with no niche to gain an edge in AI compared to its competitors. The company has a lot of potential in the technology space in the gaming, data centers, personal computers, and consumer products sectors. However, recent performance does not inspire confidence about the immediate future.
Additionally, AMD’s free cash flow has plummeted 37% over the past 12 months, indicating that investing in AMD’s business may be difficult in the near term.
Data from YCharts
Moreover, this chart shows that Nvidia and Intel’s stocks are much better valued than AMD’s with lower price-to-earnings (P/E) ratios. The P/E ratio is a useful valuation metric calculated by dividing a company’s stock price by its earnings per share. And the lower the number, the better the value. In this case, AMD’s stock appears to be significantly overvalued despite the lack of significant growth this year.
The history and trends of the technology market show that it is not too late to invest in AMD for the long term. However, there are better options today that can provide greater reliability and value.
Dani Cook has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: Buy Intel for $45 in January 2025, Sell Intel for $35 in August 2024. The Motley Fool has a disclosure policy.
