Among investment opportunities in the field of artificial intelligence (AI), semiconductor stocks have become the top choice. Nvidia has been the most popular of the chip stocks for the past two years, and for good reason. The company’s graphics processing units (GPUs) play an important role in the generative development of artificial intelligence, and companies around the world can’t seem to get enough of what Nvidia has to offer.
While there remains a solid opportunity at the intersection of semiconductors and artificial intelligence, I see another stock that looks like better value right now. I will break down the current price action below Advanced micro devices(NASDAQ: AMD). And I’ll explain why I think the company is well-positioned for years of strong growth despite tough competition from Nvidia.
The chart below illustrates the price action among AMD and a number of leading semiconductor stocks, as well as VanEck Semiconductor ETF during the last year. Unlike its peers, AMD shares have fallen significantly — and as of January 14th, the stock is hovering near a 52-week low.
Considering how integral the chips are to the development of artificial intelligence, what is causing AMD’s stock to sell off while its competition has massive investor support?
As far as I can tell, the bad mood around AMD comes down to growth – or the lack of it. Right now, the company’s top line is growing at a modest 18%. Compared to Nvidia, with its nearly triple-digit sales growth, it seems unsatisfied. However, I think investors are missing the forest for the trees.
Image source: Getty Images
While AMD’s overall revenue growth may seem muted compared to the competition, it’s important to take a look at the finer details before jumping to conclusions. The company divides its revenues into four main categories: data center, client, games and embedded.
Currently, the segments of gaming and embedded devices are not developing at all. Unfortunately, this lack of growth is cannibalizing areas of the business that are thriving. According to the company’s latest financial report, data center operations grew 122% year-over-year — almost identical to Nvidia’s data center GPU segment.
Despite this impressive growth, AMD is trading at a price/earnings growth ratio (PEG) of only 0.3. That suggests analysts may be missing how robust the company’s data center business is and are therefore dampening growth estimates. Note that a stock with a PEG ratio below 1 generally implies that it is undervalued.
This year will be interesting for the chip market. Investors and Wall Street analysts will weigh in on every possible statistic surrounding Nvidia’s new Blackwell GPU — which is reportedly already sold out for the next 12 months. This is good news for Nvidia on the surface, but I think AMD has a big opportunity looming in the background.
Namely, this supply and demand dynamic presents an interesting opportunity for AMD in the sense that the company can compete on price and offer an optimal solution when companies simply cannot get their hands on Nvidia GPUs. Such an idea is also not unreasonable to accept.
A big tailwind for AMD over the past year has been the significant adoption of its MI300 accelerators by hyperscalers, including Oracle, Microsoftand Meta platform. While each of these companies also relies heavily on Nvidia’s GPU architecture, they have taken steps to diversify their AI infrastructure by complementing Nvidia’s respective stack with products developed by AMD.
When you consider that AMD already has a line of legacy chips slated for release in 2025 and 2026, I think the company has a good chance of capitalizing on the continued demand shaking the semiconductor landscape by offering a number of alternatives to Nvidia’s product suite — all by more reasonable price.
For me, investors should be focused on the growth trends around AMD’s data center GPU segment. If the company can continue to profitably accelerate this specific part of its business, then it’s only a matter of time before investors begin to notice its size, and the stock could begin to break through.
I see AMD as a compelling long-term opportunity for AI investors, and I think the continued low price makes now a lucrative time to buy the stock.
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Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions at Meta Platforms, Microsoft and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, Oracle and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
