This artificial intelligence (AI) stock is an absolute bargain right now and could skyrocket by 2025

Among investment opportunities in the field of artificial intelligence (AI), semiconductor stocks have emerged as one of the best options. Nvidia has been the hottest among chip stocks for the past couple of years, and for good reason. The company’s graphics processing units (GPUs) play an important role in the development of generative AI, and businesses around the world can’t get enough of what Nvidia has to offer.

While this remains a solid opportunity at the intersection of semiconductors and AI, I see another stock that looks like a better value right now. Next, I’ll break down the current price action around Advanced microdevices (NASDAQ: AMD). And I’ll explain why I think the company is well-positioned for years of robust growth despite a difficult matchup with Nvidia.

The chart below illustrates the price movements between AMD and a number of major semiconductor stocks, as well as the VanEck Semiconductor ETF during the last year. Unlike its peers, AMD shares have fallen sharply, and as of January 14th, the stock is hovering near a 52-week low.

Given how integral chips are to AI development, what’s driving AMD stock to sell off while its competition is witnessing overwhelming investor support?

As far as I can tell, the bad feeling surrounding 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 looks underwhelming. However, I think investors are missing the forest for the trees.

AI chip powering a circuit board — Image source: Getty Images

While AMD’s overall revenue growth may seem muted when compared to the competition, it’s crucial to take a look at the finer details before jumping to a conclusion. The company divides its revenue into four main categories: data center, client, gaming and embedded.

At the moment, the company’s gaming and embedded segments are not growing at all. Unfortunately, this lack of growth is cannibalizing the areas of the business that are thriving. According to the company’s most recent financial report, the data center operation 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 (PEG) ratio of only 0.3. This suggests that analysts may be missing how robust the company’s data center business is and thus mute their 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 space. Investors and Wall Street analysts will weigh every possible statistic around Nvidia’s new Blackwell GPU, which is already out for the next 12 months. This is good news for Nvidia on the surface, but I think AMD has a big opportunity on the back end.

That said, these supply and demand dynamics provide an interesting opening for AMD, as the company can compete on price and offer an optimal solution when businesses simply can’t get their hands on Nvidia GPUs. It is also not reasonable to accept this idea.

A major headwind for AMD over the past year has been the notable adoption of its MI300 accelerators by hyperscalers, including Oracle, Microsofti Metaplatforms. While each of these companies also relies heavily on Nvidia’s GPU architecture, they have made moves to diversify their AI infrastructure by supplementing their respective Nvidia stack with products developed by AMD.

When you consider that AMD already has a line of successor chips scheduled for release in 2025 and 2026, I think the company has a good chance of capitalizing on the continued demand shaking up the semiconductor landscape by offering a number of alternative solutions . in Nvidia’s suite of products, all at a more reasonable price.

For me, investors should be laser-focused on the growth trends around AMD’s data center GPU segment. If the company can continue to accelerate this specific part of its business profitably, then I think it’s only a matter of time before investors start to take note of its scale and the stock can start to explode.

I see AMD as an attractive long-term opportunity for AI investors and think the ongoing depressed price action makes now a lucrative time to buy the stock.

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See 3 “Double Down” actions »

* Stock Advisor returns from January 13, 2025

Randi Zuckerberg, former CMO and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in 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 January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has one disclosure policy.

This artificial intelligence (AI) stock is an absolute bargain right now and could skyrocket by 2025 was originally published by The Motley Fool

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