AMD's Stock Has Doubled This Year. Here's Why It's Not Too Late to Invest.

Advanced Micro Devices (AMD) has significantly outperformed Nvidia this year, with returns of 115% versus 42%, as its AI chip business gains substantial traction and establishes it as a formidable competitor. Strategic partnerships, including a potential OpenAI investment and IBM collaboration for quantum computing, underscore its growing market presence and double-digit growth rates. Despite a high trailing P/E of 160, AMD's forward P/E below 29 and a PEG ratio of 0.5 suggest it is undervalued given CEO Lisa Su's projection of tens of billions in future AI revenue, positioning it as a strong long-term growth investment potentially reaching a $1 trillion valuation.

Analysis

Advanced Micro Devices (AMD) has demonstrated significant outperformance this year, with its stock returning 115% compared to Nvidia's 42%, signaling a shift in the competitive landscape. This surge is attributed to AMD's AI chip business gaining substantial traction, evidenced by comfortable double-digit growth rates in recent quarters. The company is now establishing itself as a formidable rival to Nvidia in the critical AI semiconductor market.

Key strategic partnerships underpin AMD's accelerating growth trajectory. ChatGPT maker OpenAI is planning to become a significant customer and potentially take a 10% stake in AMD, while IBM intends to utilize AMD's chips for quantum computing development. CEO Lisa Su's projection of tens of billions of dollars from the AI business in the coming years further solidifies the long-term growth outlook.

Despite a high trailing price-to-earnings (P/E) multiple of around 160, AMD's valuation appears more attractive when considering its forward P/E of less than 29, based on analyst estimates. Furthermore, its price-to-earnings-growth (PEG) ratio of approximately 0.5 suggests the stock could be a bargain for growth investors, well below the 1.0 cutoff for a good growth stock. This indicates significant future earnings potential.

The company, currently at a $420 billion market cap, is positioned as a strong buy-and-hold candidate, with potential to reach a $1 trillion valuation. Its cutting-edge technology and role as an alternative to Nvidia's high-priced chips are expected to drive continued growth and investor optimism over multiple years.

Key Decisions for Investors

• Consider AMD for long-term growth portfolios, given its accelerating AI segment momentum and strategic partnerships with key industry players like OpenAI and IBM.
• Monitor the company's execution on its AI chip roadmap and market share gains against competitors, as this will be crucial for sustaining its growth trajectory.
• Evaluate the forward P/E and PEG ratios as more indicative valuation metrics, suggesting potential undervaluation despite the high trailing P/E, and assess the long-term revenue projections from its AI business.