Check Out the AI Stock I’m Adding to My Portfolio
Currently, I have not invested heavily in artificial intelligence (AI) stocks, mainly because the valuations of some large tech companies seem excessive, especially as a value investor. However, my perspective is changing, particularly regarding Advanced Micro Devices (AMD). After facing a challenging year, AMD’s valuation appears attractive now, which is prompting me to consider a substantial investment. Let’s delve into the reasons why I am keen to invest in AMD and the factors I will monitor moving forward.
Opportunities for Growth
AMD is somewhat overshadowed by Nvidia, especially in the graphics processing unit (GPU) market for data centers and AI applications. While it’s true that AMD holds a smaller share compared to Nvidia, the market itself is large enough to accommodate several successful players. In 2024, AMD’s data center revenue surged by an impressive 94% year over year, contributing significantly to the company’s total revenue stream.
Recently, AMD has secured important partnerships, such as with IBM, which has decided to utilize AMD’s Instinct MI300X accelerators for generative AI tasks. Moreover, the data center industry is projected to expand by 140% by 2030, providing AMD with multiple future opportunities.
Diverse Product Portfolio
Beyond its data center business, AMD is a major provider of central processing units (CPUs) for both laptops and desktop computers. The company has unveiled several new Ryzen processor models, demonstrating its commitment to innovation. Additionally, AMD manufactures GPUs aimed at gaming systems and chips for various other applications, including autonomous vehicles—a sector ripe with potential.
Financially, AMD is on solid ground, boasting over $5 billion in cash and minimal debt. This robust balance sheet allows AMD the flexibility to seize growth opportunities and invest capital efficiently.
Latest financial results indicate overall health; AMD’s revenue rose by 24% year over year in Q4 2024, gross margins improved by 300 basis points, and adjusted earnings per share jumped by 42%. These metrics highlight AMD’s strength in the competitive market.
A Proven Success Story at an Attractive Price
Since CEO Lisa Su took the reins in 2014, AMD has transformed its image. Initially viewed as a budget alternative to Intel, AMD has undergone significant changes under Su’s leadership, effectively leveraging the AI boom. The company’s share of the CPU market has more than doubled from 11% to 24% over the years, suggesting ongoing growth potential.
Investors who placed their faith in AMD have reaped significant rewards, with the company delivering a remarkable total return exceeding 3,000% since Su’s appointment. Today, AMD’s market capitalization is about 70% larger than Intel’s.
With various avenues for growth, a substantial market to explore, and a history of strategic product decisions, AMD presents an attractive opportunity. Currently trading at a price-to-earnings ratio of just 23 times forward earnings, and priced nearly 50% lower than its peak over the last year, I am eager to add AMD to my investment portfolio soon.
