Why now is the time to buy AMD

Image Credit: AMD Website

Since the end of the 2022 fiscal year AMD (Advanced micro devices) has had an 84% upturn and is continuing to rise. 

After an earnings miss in Q1 2023 where the company's earnings were $5.4 billion, a 9% drop since the same quarter in 2022 AMD has continued to increase steadily. In AMD’s Q1 earnings a large drop came from a 65% decrease in customer/client segments, with this drop resulting in $139 million quarterly net operating loss. The large drop in customer/client segments is a result of lower demand for PC components and PC’s from businesses Local and international. 

The growth AMD is currently seeing has resulted in a P/E ratio of 460.01, leading many investors to see the company as an expensive, overvalued stock. This P/E ratio is high however, similar to the company's major competitor Nvidia. As of 24th july 2023 Nvidia's P/E ratio is 231.85, highly overvalued. Similar to AMD, both P/E ratios are high suggesting that investors are willing to invest with higher future earnings and revenue in mind.

As the Artificial intelligence (AI) trend continues AMD has positioned itself to capitalize on future profits from this sector with multiple AI chips designed to power the computer industry behind this technology. Currently AMD’s biggest AI project is the powering of Microsoft's Azure virtual machines through the use of AMD’s MI300X. With an expansion into this growing industry and AMD’s current position in the CPU and GPU AMD is positioned greatly to continue to grow. 

Although AMD faces harsh competition from NVIDIA in the AI industry and gaming/computer GPU market investors should not fear the competition with both companies being long term rivals. Additionally both companies are only competitors in a smaller growing segment of AMD GPUs and AI computing components, not AMD’s main segment of semiconductors. Due to AMD being less familiar with the GPU and AI market there are some potential risks for investors with AMD not likely performing the way markets might hope. However as of now with Nvidia struggling to keep up with GPU demand companies could be looking to diversify into AMD GPUs as a means of meeting set targets. As some investors might fear the competition that AMD faces it is important to remember that in the past AMD has been shown to beat its competitors with innovation as shown with AMD overtaking Intel in the semiconductor market. When AMD first entered the market they revolutionized and most notably beat intel in this market by breaking the semiconductor down into multiple chipsets allowing each part of the chip to be refined to the best of current technology. With the GPU and AI market being high capital markets AMD is taking the same approach to beat Nvidia with the company’s new AI and GPU’s being more efficient than that of their counterparts.

As an investor now is a good time to invest. Although the P/E ratio is expensive, AMD's earnings miss has shown investors that there is faith that more growth will be seen in the future, with more major profits and revenue expected in the future as the company continues to expand. Although AMD is taking a risk by competing with Nvidia in the GPU and AI market they are well positioned to compete and maybe someday overtake Nvidia bringing massive returns for those who did invest. With many contracts being signed with companies such as Microsoft, fast growth should be seen for the company. Although the company could potentially miss future earnings it is important to note that as the world continues to rebound from covid and the international effects of ongoing conflicts, consumer demand will continue to rebound leading to increased revenue for the company in its biggest sector moving forward.