• Advanced Micro Devices’s stock has dropped 50% from its 52-week high, presenting a potential opportunity for long-term investors.
• While the company faces challenges in the AI GPU sector, its data center business continues to grow. 
• Analysts remain bullish on the company’s prospects, and a recent insider purchase signals confidence. 

After a steep fall, stock in Advanced Micro Devices (AMD) may be primed for a comeback. While the company faces challenges in its AI graphics processing unit (GPU) business, its strong showing in data centers and a rare insider purchase hint at something bigger. That’s why now might be the time to reconsider investing in the stock.

Shares have been under pressure and are now trading for $115, about 50% below their 52-week high. The company has issued cautious guidance for 2025, prompting investors to reconsider its prospects. But despite the recent pullback, there’s growing sentiment the company’s stock may be oversold, presenting an appealing opportunity for long-term investors.

AI projections fall short

The drop in AMD’s stock has prompted investors to reassess the company’s prospects, given the broader market’s recent volatility and the continuing AI-driven transformation of the tech industry. AMD’s stock has been weighed down by concern over the soaring dominance of Nvidia (NVDA) in this sector, as well as broader market uncertainty, including potential trade disruptions from the Trump administration’s tariff policies. Still,AMD remains an attractive stock, with many investors viewing its valuation as more appealing than those of its competitors, particularly in light of the recent correction. 

The key to understanding AMD’s investment case lies in its focus on two markets: data centers and AI GPUs, While the data center market, driven by its Epyc processors, has consistently driven growth, the company’s ambitions in AI GPU has not yet materialized at the same pace as its competitors. AI GPUs power the growing demand for machine learning applications and represent a highly specialized segment that is growing rapidly. However, this growth is not only dependent on cutting-edge hardware but also on a robust software ecosystem—something that Nvidia has dominated for years with its CUDA framework. 

While AMD’s Instinct GPUs are competitive and offer better value for money in certain contexts, the company’s offerings have struggled to match Nvidia’s performance and leadership in AI applications. As a result, AMD’s AI GPU business is still in its early stages, and the company’s forecast for AI GPU growth in 2025 has been tempered. That contrasts sharply with Nvidia’s breakneck expansion.

The broader data center market, on the other hand, continues to perform well for AMD. The company has made considerable strides in capturing market share from Intel, with its data center revenue increasing by 69% year-over-year in Q4 2024. This growth is largely driven by strong demand for its Epyc processors and Instinct GPUs in cloud and enterprise applications. The focus on cloud and enterprise now accounts for a growing portion of its revenue and provides a solid reason for optimism about the company’s shares. 

Q4 earnings demonstrate sustained growth

AMD’s Q4 2024 earnings report reveals a growing company that’s facing a mix of opportunities and challenges. It posted total revenue of $7.66 billion for the quarter, reflecting a 24% increase year-over-year. This growth was driven by a 58% jump in client revenue, which signals strong demand for its Ryzen processors for desktop and mobile computers. Data centers, a pillar of AMD’s long-term strategy, showed remarkable growth with a 69% year-over-year increase in revenue, reaching $3.86 billion. This was largely attributed to the ramp-up in sales of AMD’s Epyc processors, which have been adopted by major infrastructure players such as Meta (META) and Amazon (AMZN). 

Despite these strong results, AMD fell short of investors’ expectations in several areas. The AI GPU segment, which has been a focal point for growth, experienced slower-than-anticipated progress. While AMD’s Instinct GPUs are making early in-roads, the company’s forecast for AI GPU revenue in the first half of 2025 is basically flat compared to the second half of last year. This subdued growth raises concern about the company’s ability to capture a larger share of the AI GPU market, at least in the near term.

Additionally, AMD’s gaming segment, once a major revenue driver, saw a sharp decline. Gaming revenue dropped nearly 60% year-over-year, largely because of a slump in semi-custom chip sales, which were hit by weaker demand from both the gaming and cryptocurrency mining sectors. This setback illustrates the cyclical ebb and flow of the gaming industry, where demand often shifts in response to broader market trends and seasonal changes.

Valuation looks compelling after selloff

AMD has a market cap below $200 billion. Looking at that valuation, the numbers suggest the stock could be undervalued. The forward-looking GAAP price-to-earnings (P/E) ratio has dropped to 24, below the sector median of 26. For a company operating in high-growth sectors, which typically command premium valuations, this lower P/E ratio indicates overly pessimistic market sentiment. That could present a buying opportunity for investors willing to look beyond short-term volatility and focus on the company’s long-term potential for growth.

AMD’s Price-to-Book (P/B) ratio has dropped to 3.2, below the sector median of 3.6, indicating the stock is trading at a reasonable discount to its book value. This decline in P/B, coupled with the lower P/E ratio, suggests the stock may be oversold. Considering the company’s strong position in data centers and its growing presence in AI, this discount may signal the market is undervaluing the company’s long-term prospects.

Despite recent volatility, analysts remain optimistic about AMD’s future. Of the 54 covering the stock, 38 rate it as a “buy” or “overweight,” indicating confidence in the company’s long-term outlook. The average analyst price target is about $150 per share, significantly above its current price of $115/share. Even after the sharp decline, analysts suggest the stock still holds attractive upside potential, particularly as the company continues to build on its recent momentum in the data center niche.

Along those lines, the recent downgrade by Daiwa, which lowered its price target from $170 to $130 per share, reflects concern over AMD’s slower-than-expected AI GPU adoption and its cautious first-half 2025 guidance. However, despite this downgrade, the stock has fallen even farther, trading below Daiwa’s revised price target. This example shows the market might be overreacting to short-term challenges, potentially undervaluing the stock and overlooking its robust long-term growth prospects.

Investment takeaways

AMD’s stock has taken a hit recently, but this could be the moment for long-term investors to step in. While the company faces hurdles in its AI GPU business and has issued cautious guidance for early 2025, the stock’s valuation seems to ignore the larger picture. With a P/E ratio that trails the sector median and a P/B ratio suggesting it’s trading at a discount to its true book value, AMD’s shares may be unfairly priced, considering its significant prospects for growth in the expanding data center and AI sectors.

Analyst sentiment remains positive, with an average price target well above its current price. This suggests the stock still holds significant upside, even amid recent volatility. Adding to the bullish outlook is a rare insider purchase by AMD’s chief commercial officer, Phil Guido, who bought 4,645 shares for $500,000. This first insider purchase in over a decade reflects strong confidence in the company. 

Andrew Prochnow has more than 15 years of experience trading the global financial markets, including 10 years as a professional options trader. Andrew is a frequent contributor Luckbox magazine.

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