Why AMD Stock Is Worth Owning Despite the Premium

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At first glance, it might look like Advanced Micro Devices (NASDAQ:AMD), commonly known as just AMD, is too richly valued. However, AMD continues to develop and release top-tier artificial intelligence processors and graphics processing units. Consequently, there’s a powerful bullish argument for AMD stock even if it seems too expensive right now.

AMD’s MI300 processor is gaining a reputation as an industry-leading AI accelerator. AMD expects this chip to generate $400 million in revenue this quarter. That’s impressive, but it doesn’t even tell half of the story. As we delve deeper into AMD’s product line, even the most stubborn value seekers should see why this chip-making giant is worth an investment.

Is AMD Stock Too Pricey to Buy?

This might shock you if you rely on traditional valuation metrics. In mid-November, AMD had a GAAP trailing 12-month price-to-earnings ratio of 1,012.25x. Meanwhile, the sector median P/E ratio was 24.59x.

AMD had price-to-sales and price-to-book ratios above their respective sector medians. AMD stock has seemed overpriced for a while but continued to move higher in 2023.

Therefore, investors might consider valuing AMD on its performance instead of relying too heavily on traditional valuation metrics. Remember, AMD demonstrated growth and beat Wall Street’s expectations with the company’s third-quarter 2023 top- and bottom-line results.

In addition, AMD is relentless in advancing next-generation, AI-compatible tech hardware. Notably, the company is getting ready to launch its next generation of data-center graphics processing unit (GPU) accelerators.

Mark your calendar for Dec. 6, as that’s when AMD will unveil its new line of Instinct MI300 data center GPU accelerators.

AMD CEO Lisa Su will discuss this product family at an in-person and livestreamed event called “Advancing AI.” Of course, viewers can expect Su to tout the Instinct MI300 and other product lines as game changers in the AI-compatible hardware market.

AMD Fosters ‘AI Everywhere’ With Microsoft-Focused Products

Also, AMD’s products were prominently featured at Microsoft’s (NASDAQ:MSFT) recent Microsoft Ignite event. Specifically, Microsoft highlighted AMD’s artificial intelligence compatible processors for use with Microsoft’s products.            

These AMD products included the Instinct MI300X accelerator, EPYC central processing units and Ryzen CPUs with AI engines. Plus, AMD showcased the Ryzen AI, which is the “first dedicated AI accelerator available on an x86 processor.” 

Vamsi Boppana, Senior Vice President, AI, AMD, declared that the chip maker is “fostering AI everywhere—from the cloud, to the enterprise and end point devices—all powered by our CPUs, GPUs, accelerators and AI engines.” Clearly, AMD’s management seeks to promote the company as a first choice for AI-enabled hardware.

For AMD’s investors, it’s undoubtedly encouraging to see a tech giant like Microsoft highlighting AMD’s products. As Microsoft introduces new services for generative AI and cloud computing applications, AMD will be ready to power these services with its speedy, powerful processors.

AMD Stock Might Actually Be a Bargain

It’s understandable if some value seekers are bothered by AMD’s 1,000x P/E ratio. Yet, old-school valuation metrics don’t always tell the full story.

Based on the company’s strong position in the lucrative AI-hardware market, AMD might actually be undervalued right now. Most likely, AMD stock will continue to move higher because there’s high demand for the company’s products. So, consider a moderately sized investment in AMD and don’t obsess too much about traditional metrics with this tech-hardware leader.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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