1 Artificial Intelligence (AI) Chip Stock to Buy the Dip Right Now (Hint: It's Not Nvidia)

Over the past year, a number of semiconductor stocks have witnessed meteoric gains thanks to ongoing euphoria surrounding artificial intelligence (AI). The share prices of Nvidia, Taiwan Semiconductor Manufacturing, and Broadcom have all risen approximately 80% over the last 12 months -- handily outperforming both the S&P 500 and Nasdaq Composite.

But one name in the chip realm that just can't seem to appeal to investors is Advanced Micro Devices (NASDAQ: AMD), whose shares have dropped 36% in the last year.

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Below, I'm going to analyze AMD's fourth-quarter and full-year 2024 earnings report. While the results can be a little challenging to navigate, I see a lot of potential in AMD's long-run roadmap. I'll explain how the company is making notable inroads in the AI realm, and make the case for why now looks like a great opportunity to buy the dip in AMD stock.

AMD's earnings were a mixed bag, but...

I think the surface-level explanation as to why stocks such as Nvidia or Taiwan Semi consistently climbed higher over the last year is because each company's business results are accelerating across the board. That's generally a good recipe to garner enthusiasm from investors.

Conversely, AMD's financial profile has been tougher to gauge. Among its four operating segments, two are growing in spectacular fashion... and two are decelerating at alarming rates. For this reason, AMD's overall growth rates look quite mundane compared to its chip peers.

For all of 2024, AMD's revenue increased by 24% while net income rose 42%. It's a respectable picture, but when you consider that the gaming and embedded segments declined by 59% and 13%, respectively, it's hard not to wonder what AMD would look like if all of its major businesses were in a position of strength.

While I understand that point of view, I think it's shortsighted. Remember, the semiconductor industry is quite cyclical. For this reason, it's not uncommon for a company such as AMD to witness ebbs and flows across certain operating categories. To me, the real concerns should be over whether or not the company's long-term narrative looks robust or weak.

Image source: Getty Images.

... there seems to be more good news than bad news

The area that I personally focus on most regarding AMD is its data center business. This is the part of the company that supplied advanced chipware known as graphics processing units (GPUs) to data centers. For most of the last two years, Nvidia has been the primary player in town when it comes to data center GPUs.

However, a closer analysis of AMD's financial results suggests the company is making significant headway in its own right. During 2024, AMD's data center business generated $12.6 billion in sales -- rising 94% year over year. Even better? Operating profits in this unit grew almost threefold. To put this into perspective, AMD's data center business only grew by 7% year over year in 2023 and operating profits actually dropped by more than 30%. This is quite a turnaround in just one year.

So, what changed? AMD released its MI300X accelerators in December 2023. This product has served as a pivotal shift for AMD, as the company now has a GPU that can compete more directly with those supplied by Nvidia -- and all at a reduced cost.

Over the last year, AMD has made inroads with the likes of Microsoft, Meta Platforms, and Oracle, supplying each of these companies with MI300 chipware in addition to their existing Nvidia hardware stack. Recent comments made by leadership from Microsoft and Meta heavily imply that investment in AI infrastructure is very much planned to continue, and I see these commitments as a positive force for AMD.

AMD stock looks dirt cheap right now

Right now, AMD trades at a forward price-to-earnings (P/E) multiple of 24, which is essentially the same as the average forward P/E of the S&P 500. I see the parity between these multiples as a suggestion that investors view a position in AMD as carrying the same upside as simply dumping your money into an index tracking the S&P 500.

In light of the myriad expanding markets underneath the AI umbrella, combined with the importance chips play in powering these applications, it's hard to justify an investment in AMD as being on par with the broader market. When you consider just how quickly the company has scaled its data center business, I become even more bullish on AMD's potential to disrupt players like Nvidia down the road.

I see now as a great opportunity to buy the dip, hand over fist, in AMD stock and prepare to hold for the long run.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to 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 a disclosure policy.