AMD Stock Falls After Earnings: 3 Reasons to Buy the Stock Right Now

Advanced Micro Devices (NASDAQ: AMD), also known as just AMD, reported earnings recently that didn't seem to impress investors, even though its numbers weren't bad at all. The stock is down 16% since it released its quarterly report last week.

Investors haven't been all that excited with AMD even before earnings. Despite the seemingly plentiful growth opportunities it possesses, the stock is down 5% this year, while its rival Nvidia (NASDAQ: NVDA) has seen its value skyrocket by more than 170%.

Although there doesn't appear to be a whole lot of excitement surrounding the chipmaker, here's why investors shouldn't hesitate to buy up shares of AMD right now.

1. The stock remains fairly cheap with respect to its expected earnings growth

AMD's latest earnings numbers were strong, despite what the markets may appear to be telling you. Revenue for the September quarter totaled $6.8 billion and rose by 18% year over year, while operating income of $724 million was more than three times the $224 million that AMD reported in the same period a year earlier.

If you're investing in AMD, that's likely because you see it as a good long-term play and artificial intelligence (AI) investment to buy and hold for not just a quarter, but for years. It's in the long term where the payoff can be significant. If you look at the stock's price-to-earnings (P/E) multiple of more than 100, it looks expensive. But based on analyst expectations, AMD's forward P/E ratio is modest at 28 -- that's lower than Nvidia's multiple of around 35.

AMD's growth rate could also accelerate thanks to an upcoming catalyst, which may result in investors willing to pay for a higher multiple for the stock in the not-too-distant future.

2. AMD is only starting to ship the MI325X chip

Even if you aren't impressed with AMD's growth rate, there's reason to remain bullish in the near future. That's because the company is still in the early stages of rolling out its Instinct MI325X chip, which could provide customers with a viable alternative to Nvidia's Blackwell chips.

AMD isn't going to be shipping them in large quantities until next year. That means it may take at least a couple of quarters to get a good gauge of what the demand looks like for the chips and how competitive they prove to be.

Based on the lack of excitement around AMD's stock right now, it doesn't suggest the market is pricing this opportunity in. That could change next year if AMD's results and guidance reflect an uptick in sales due to that AI-powered demand.

3. Nvidia may be dominating, but customers will want other options

Nvidia has been the hot chip stock to buy in the past couple of years, but investors shouldn't rule out AMD. Companies will want other options besides Nvidia chips. Not only will companies likely want alternatives so that they aren't dependent on a single vendor, but supply issues could create a significant need for AMD's AI chips.

Businesses that want to buy Nvidia's Blackwell chips will have to wait more than a year, based on the current backlog. Depending on how long the shortage lasts, it could create an opportunity for AMD to provide a viable alternative and perhaps win over customers in the process.

Given the surging demand for AI chips, it's hard not to like AMD, even as a solid No. 2 player in the industry. CEO Lisa Su says that "AI demand has actually continued to take off and actually exceed expectations. It's clear that the rate of investment is continuing to grow everywhere."

AMD stock looks like an underrated buy

The chip market is large enough for both Nvidia and AMD to co-exist and to generate significant sales growth. But AI investors don't appear to be pricing in that potential for AMD's stock today, and that could be a missed opportunity. At a more favorable valuation to Nvidia, AMD is an attractive stock to buy, and investors should be careful not to overlook it. Even if you like Nvidia, it may not be a bad idea to hold both of these stocks for the long haul.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.