Should You Buy the Dip in AMD Stock?

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Should You Buy the Dip in AMD Stock?


Following a sharp rebound in 2023, the capital markets have been scorching hot this year — with the S&P 500 and Nasdaq Composite gaining 24% and 30%, respectively, as of market close on Dec. 20.

Of course, this year’s hottest investment theme — artificial intelligence (AI) — remained unchanged from 2023. Within the AI realm, semiconductor stocks have generated some of the most lucrative returns over the last couple of years.

But one stock that hasn’t seemed to captivate investors is Nvidia‘s chief rival, Advanced Micro Devices (NASDAQ: AMD). As of this writing, shares of AMD have fallen by 19% this year. When compared to Nvidia’s return of 172%, investing in AMD looks like a tough sell.

Below, I’ll break down some of the factors that are influencing AMD’s price action and assess if now is a good opportunity to buy the dip in AMD stock as it trades near a 52-week low.

In late October, AMD announced financial results for its third quarter. The company’s revenue of $6.8 billion only represented an increase of 18% year over year. While this might look mundane compared to other AI darlings, I’d encourage investors to look a little deeper.

AMD reports revenue into four major categories: data center, client, gaming, and embedded. During the third quarter, AMD’s gaming and embedded segments declined by 69% and 25%, respectively, year over year. On the other hand, the company’s client segment increased by 29% while the data center business rose 122% year over year.

With such a wide disparity among its various businesses, AMD’s total revenue growth of 18% looks more reasonable. Furthermore, one aspect I think is going overlooked is that AMD’s data center business is growing at a commensurate pace to Nvidia’s. This is not a dynamic I would discount, and below I’ll detail why.

An AI chip on a circuit board.
Image source: Getty Images.

Nvidia’s biggest advantage in the AI arms race may not be its technological chops. Rather, for the better part of a year Nvidia did not have any competition in the graphics processing unit (GPU) market. This first-mover advantage allowed Nvidia to achieve enormous levels of pricing power as demand for chip ware steadily rose on the heels of rising investment in generative AI.

However, AMD’s foray into the data center GPU market is clearly beginning to bear fruit. Both Microsoft and Meta Platforms, which are known customers of Nvidia, are also complementing their chip stack with AMD’s MI300 accelerators.



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