AMD's Shares Dip Following Earnings Release: Three Justified Motives to Purchase the Shares Immediately
AMD's Shares Dip Following Earnings Release: Three Justified Motives to Purchase the Shares Immediately
Advanced Micro Devices (AMD, down -2.83%), often simply referred to as AMD, recently announced earnings that fell short of investor expectations, despite the company's numbers not being all that bad. The stock has plummeted 16% since its last quarterly report was released a week ago.
Investor interest in AMD has been lackluster even before the earnings release. Despite the company's promising growth prospects, the stock has dipped 5% this year, while rival Nvidia (NVDA, down -2.25%) has soared by over 170%.
However, there are several reasons why investors should consider buying AMD shares at this time.
1. The stock is still relatively affordable given its projected earnings growth
AMD's latest earnings report shows strong performance, despite what the market might indicate. The company reported revenue of $6.8 billion for the September quarter, a 18% increase year over year. Operating income also surged to $724 million, more than triple the $224 million reported in the same period the previous year.
If you're investing in AMD, you're likely looking at it as a long-term play and as an investment in artificial intelligence (AI). For the long term, the potential payoff can be substantial. The stock's price-to-earnings (P/E) multiple is currently over 100, which may seem expensive. However, based on analyst forecasts, AMD's forward P/E ratio is a more modest 28 – lower than Nvidia's ratio of around 35.
AMD's growth rate could also accelerate due to an upcoming catalyst, leading investors to pay a higher multiple for the stock in the near future.
2. AMD is just beginning to roll out the MI325X chip
Even if you're not impressed with AMD's growth rate, there's reasons to remain optimistic in the short term. The company is still in the early stages of deploying its Instinct MI325X chip, which could offer a viable alternative to Nvidia's Blackwell chips.
AMD won't be mass-producing these chips until next year. That means it may take at least a couple of quarters to gauge demand and see how competitive the chips are.
Given the lack of enthusiasm for AMD's stock at the moment, it suggests that the market is not fully valuing this opportunity. If AMD's results and guidance show an uptick in sales due to AI-powered demand next year, investor interest could shift.
3. Customers will want alternatives to Nvidia
Nvidia has been the go-to chip stock for the past couple of years, but investors should not underestimate AMD. Companies will want alternatives to Nvidia chips to avoid dependence on one vendor. Moreover, supply issues could create a need for AMD's AI chips.
Businesses looking to buy Nvidia's Blackwell chips will have to wait more than a year due to current inventory shortages. If the shortage persists, it could present an opportunity for AMD to provide a viable alternative and potentially win over customers.
In light of the surging demand for AI chips, AMD's position as a strong No. 2 player in the industry looks attractive. As CEO Lisa Su puts it, "AI demand has actually continued to take off and has actually exceeded expectations. It's clear that the rate of investment is continuing to grow everywhere."
AMD stock appears to be undervalued
The chip market is large enough for both Nvidia and AMD to prosper and generate significant sales growth. However, AI investors don't seem to be valuing AMD's potential for growth in the stock market today, and this may represent a missed opportunity. At a more favorable valuation compared to Nvidia, AMD is an attractive stock to buy. Investors should exercise caution not to overlook it, even if they are bullish on Nvidia.
- Despite the current market sentiment, investors who are focused on finance and long-term investing might find AMD's stock appealing, given its projected earnings growth and lower forward P/E ratio compared to its rival Nvidia.
- In the realm of finance and investing, AMD's upcoming MI325X chip could potentially offer a competitive edge against Nvidia's Blackwell chips, which are currently in high demand but facing supply issues. This situation might present an opportunity for investors to consider buying AMD shares, especially if the company's results and guidance show an uptick in sales due to AI-powered demand in the near future.