Why AMD Stock Is Still a Buy Despite the Recent Selloff

Is AMD a top chip stock long-term investors should own?

By Chris MacDonald, InvestorPlace Contributor Aug 8, 2024, 2:35 pm EDT
  • Advanced Micro Devices (AMD) is among the top chip stocks that’s seen impressive revenue and earnings growth in the past.
  • The company’s recent strong results were driven by impressive performance from its data center business and AI endeavors.
  • Rapid adoption of the company’s MI300 GPUs has led to a guidance raise, which should remain a strong signal for investors. 
AMD stock - Why AMD Stock Is Still a Buy Despite the Recent Selloff

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Advanced Micro Devices (NASDAQ:AMD) recently reported strong second quarter (Q2) results with $5.8 billion in revenue and 69 cents in EPS, marking a 9% top-line increase and a turnaround to operating profit. Despite a 25% drop in stock price over six months, AMD’s record 115% data center revenue growth and overall progress suggest it remains a solid artificial intelligence (AI) investment opportunity.

AMD plans to release new AI chips annually, starting with the MI325X in Q4 and the MI400 by 2026. Despite supply constraints, the MI300 remains in high demand. AMD’s data center revenue reached $2.8 billion, still small compared to Nvidia’s $22.6 billion. Moreover, AMD has drawn investor attention for its cost-effective AI solutions and its $665 million acquisition of Silo AI, aimed at boosting its market share and competitiveness against AI chip rival Nvidia (NASDAQ:NVDA) and others in this space.

For PC gamers, AI-driven GPU advancements might not bring immediate new releases. However, AMD’s Ryzen CPUs rose 49% year-over-year, and Radeon 6000 GPU sales increased. AMD is set to launch over 100 platforms with its Ryzen AI 300 chips, including models from Asus, HP, Acer, and Lenovo.

Here’s more on why I think AMD is a chip stock with incredible potential and a valuation that’s much better than its peers.

Impressive Q2 Earnings 

Sign of AMD office in Markham, Ontario, Canada. Advanced Micro Devices, Inc. is an American multinational semiconductor company.
Source: JHVEPhoto / Shutterstock.com

With Q2 earnings surpassing estimates and impressing investors once again, AMD also saw a 115% surge in its data center revenue. The company’s $1 billion revenue surge tied to its MI300 chip sales is impressive, and investors are clearly taking note. With all this positive news, the stock surged 8% after Q2 earnings, a move I think brings the stock more in focus on where it should trade. And though AMD stock still trails that of Nvidia and others in the AI space, the stock’s recent performance is proof that there will likely be more potential market share gains in the coming months.

In early 2023, AMD’s revenue fell due to a cooling PC market and macroeconomic challenges. However, by mid-2024, AMD saw revenue growth driven by its data center segment, which experienced an 80% increase in the first quarter (Q1), contributing to 48% of the company’s revenue, up from 24% the previous year.

AMD’s data center growth offset its gaming segment’s decline due to weak console sales and competitive losses to Nvidia. Meanwhile, the company’s Ryzen 8000 CPUs stabilized its PC market position against Intel (NASDAQ:INTC). Plus, with Microsoft (NASDAQ:MSFT) integrating AMD chips, diversifying away from Nvidia, and AI-capable PCs set to grow rapidly, AMD’s revenue prospects look strong. The client segment also saw a 49% revenue increase, positioning AMD stock for significant growth as AI PC shipments rise.

Getting Stronger and Stronger in AI

amd stock
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AMD’s Q2 earnings exceeded expectations, with strong guidance for the third quarter. CEO Lisa Su highlighted growth in AI demand driving revenue from Instinct, EPYC, and Ryzen processors. Pre-market, AMD surged 9%, and other AI chip stocks like Intel and Nvidia surged as well.

With revenue from data centers reaching $2.8 billion, this segment is not one to miss. The MI300X GPU saw strong adoption from major partners, with future models MI325X, MI350X, and MI400 planned. Client segment revenue hit $1.5 billion, surpassing forecasts and rising from $998 million a year ago.

The company’s strong quarterly results briefly boosted the semiconductor sector, but the stock has since fallen over 37% from its peak. Despite the drop, AMD’s AI-driven business remains robust, with solid demand for its Instinct and Ryzen processors. Investors are currently focused on safer trades, but AMD’s future prospects in AI suggest it could rebound.

Gaming and embedded sales lagged as well, with embedded revenue only slightly up from Q1. As gaming’s impact lessens and data center and client segments expand AMD’s growth is expected to accelerate. This makes this chip name one I think is worth owning for the long haul.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

Semiconductor, Technology

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