Why Advanced Micro Devices Could Be This Year's Best Value Play

Advanced Micro Devices (NASDAQ: AMD) banal has already risen by much than 105% implicit the past twelvemonth of trading. With the company's marketplace capitalization sitting astatine $407 billion, the semiconductor specializer is valued astatine astir 11.8 times this year's expected income and 36 times expected earnings.

With those growth-dependent valuation levels, AMD whitethorn not look similar overmuch of a "value" play by accepted metrics. On the different hand, the transition of clip could upwind up showing that the banal was really successful deep-value territory astatine existent prices.

AMD volition apt proceed to instrumentality marketplace stock distant from Intel successful the PC and server cardinal processing portion (CPU) market. More importantly, the institution looks poised to people immoderate important wins successful the artificial quality (AI) graphics processing portion (GPU) space.

While ultra-high-end GPUs stay the astir important tools for grooming caller models and pushing AI forward, hardware that's little than bleeding-edge tin inactive tally AI models and beryllium acold much businesslike successful presumption of cost. These alternatives won't bid the aforesaid precocious margins arsenic top-of-the-line processors, but an accrued income premix for AI chips should inactive person a important beneficial interaction connected AMD's margins.

AMD banal astir apt won't surpass oregon drawback up to Nvidia erstwhile it comes to ultra-high-end GPU show this year, but it doesn't request to execute those feats successful bid to station large wins successful the AI space. OpenAI is 1 of the biggest users of Nvidia's processors, but it announced past twelvemonth that it had signed a large caller concern with AMD.

There's a bully accidental that starring tech giants volition proceed to purpose to trim immoderate of their reliance connected Nvidia's processors, and AMD GPUs connection speedy and casual avenues for diversification. Nvidia looks poised to clasp a beardown pb erstwhile it comes to the grooming of next-gen AI models, but really moving the models is little hardware intensive -- and AMD should spot tailwinds connected to rising inference demand.

If maturation for AI revenues continues to accelerate successful its upcoming quarterly reports, investors could beryllium consenting to wage higher valuation multiples to ain a portion of AMD. The company's gross already jumped 36% twelvemonth implicit twelvemonth successful 2025's 3rd quarter, and the concern posted a gross borderline of 52%.