The stock market has begun this year. In the first few weeks of 2025, technology stocks in particular showcased similar levels of momentum seen for many of the last two years – thanks to a large extent to the continued support of the Artificial Intelligence (AI) narrative.
However, the euphoria stopped screaming in late January after a new Chinese business called Deepseek released a model AI similar to Chatgpt Openai.
What surprised investors is that Deepseeek claims to have built his AI for much less than that of Openai, anthropic, confusion, and other new and other businesses in the US spend. Unsurprisingly, technology stocks have been falling steeply over the past few weeks. In particular, chip stocks have actually been rocked.
Since the news of Deepseeek began to get up at the end of January, shares of Advanced Micro Devices(NASDAQ: AMD) Falling approximately 10%. Below, I'm going to analyze some interesting trends in AMD pricing and explore whether it's now a good time to buy shares from the chip leader.
The pricing metric that is useful to me is On plural (P/E). This ratio considers what Wall Street analysts anticipate for future company earnings, which can help give an insight into how industry experts are looking at company growth prospects in relation to its peers.
In the table below, I have summarized P/E P/E and AMD market capitalization as a quarter end for the past year.
Category
9/30/2023
12/31/2023
3/31/2024
6/30/2024
9/30/2024
Current
Forward p/e.
24.6
39.4
53.8
47.4
30.1
25.6
Market capitalization
$ 166 billion
$ 238 billion
$ 292 billion
$ 262 billion
$ 265 billion
$ 194 billion
Data Source: Yahoo! Finance
P/E AMD frontman of 25.6 is essentially in line with levels seen back in September 2023. The key difference I see is that the company's market capitalization has grown approximately $ 30 billion in this period of 15 month.
Image source: Getty images.
The slide below breaks down revenue and AMD operating income for 2024. In my eyes, the most important details on this slide are the operation of the company's data center as this segment competes closest with Nvid.
Image source: Investor links.
Last year, AMD data center business grew 94% to $ 12.6 billion. More importantly, the company produces significant operating leverage in this business as seen in the expanding profit margins. Unfortunately, a sluggish growth of AMD gaming and rooting units drag on the company's overall revenue and profit levels – and that's what I think investors are harming on it.
The proximity of P/E AMD forward between now and September 2023 suggests that analysts are modeling a proportionate increase in future earnings compared to the increase in the price of AMD shares over the past year. For this reason, the company's pluralist has basically remained an expansion.
That is, I think analysts model both ongoing growth in the data center business and Continuous deceleration across gambling and incorporated chips – thereby balancing the company's overall earnings picture. Personally, I do not completely accompany such a method. On a scale, I think accelerating revenue and profit from AMD data centers business will be much larger than the other segments that are not part of the GPU push.
The way I'm currently looking at AMD valuation is that the market seems to use a multiple of around 10x to data center operating income – therefore, AMD's value has grown about $ 30 billion since September 2023.
I think AMD data center business is much more valuable than $ 30 billion in the long run. Nvidia's computer and networking business is much more than AMD, and investors have witnessed a historic increase in the pricing of Nvidia's shares for most of the last two years – adding multiple trillions to the company's valuation.
AMD's consideration already sees the adoption of its MI300 accelerators with cloud hyperscalers as Microsoft and Behemothians technology as Meta platforms (Both of them are Nvidia customers too), I bullish that AMD will emerge as a legitimate force in the data center world sooner rather than later.
I see now as a lucrative opportunity to take advantage of the AMD price action, as I see the company valuation has been tremendously reduced compared to Nvidia in particular.
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