Advanced Micro Devices (AMD -6.08%) has caught the attention of Wall Street this year, with its stock up 82% since Jan. 1. Investors have rallied as the company's potential in the future of artificial intelligence (AI) has strengthened. AMD's chips look set to play a significant role in the development of AI, along with various other markets, making its stock an attractive long-term buy.

After a market downturn last year, the tech industry is booming, and chipmakers like AMD could have the most to gain from its development. As a result, now is an excellent time to learn more about this semiconductor company before its shares rise any higher.

Here are three things about AMD that smart investors know.

1. An AI boost from Microsoft

While AI has been a consistently growing technology for years, the sector's current boom is primarily owed to the launch of OpenAI's ChatGPT last November. The advanced chatbot impressed tech enthusiasts everywhere, leading countless companies to pivot their businesses to AI development. Consequently, ChatGPT's primary chip supplier, Nvidia, has seen its stock skyrocket 170% year to date.

Meanwhile, AMD has been left playing catch-up as it has worked to prove it has just as much to offer the industry as Nvidia. AMD's considerable stock rise this year suggests investors have taken notice. However, a recent collaboration with Microsoft could grant the company everything it needs to become a true rival to Nvidia in AI in the not-too-distant future.

According to a Bloomberg report from May 4, Microsoft is bolstering AMD's AI chip expansion by providing financial and engineering resources. Considering Microsoft is the biggest investor in OpenAI and home to a leading cloud platform, the company's guidance could be just what AMD needs to eventually surpass the competition.

2. A diversified revenue stream

As a leading chipmaker, AMD supplies its hardware to several areas of tech. Its role in the industry has granted it a thoroughly diverse business, strengthening its revenue streams. In addition to AI, AMD's chip can be found powering a variety of devices and platforms, from game consoles to PCs and cloud services. 

In fact, AMD exclusively provides the processing and graphics power in Sony's PlayStation 5 and Microsoft's Xbox Series X|S game consoles through its system on a chip. The partnerships were the main driver of growth in AMD's gaming segment in fiscal 2022, with revenue rising 21% to $6.8 billion as demand for game consoles soared. The increase is impressive, considering many other areas of tech suffered from steep declines amid poor macroeconomic conditions in the same period.

Moreover, AMD is benefiting from the consistently expanding cloud market, with its hardware powering data centers worldwide. The company boasts cloud giants Microsoft's Azure, Alphabet's Google Cloud, and Oracle in its list of clientele.

The tech industry is developing at a rapid rate with little way of knowing where innovations could lead in the coming years. However, one thing is certain. Powerful chips like AMD's will be crucial to that development, making it well positioned to substantially benefit over the long term.

3. AMD is a cheaper alternative to Nvidia 

AMD and Nvidia's colossal stock rises in 2023 have made both pricey options when considering their price-to-earnings (P/E) ratios. A typical P/E is between 20 to 25, with anything lower considered an undervalued stock and a bargain. The table below shows that AMD and Nvidia's forward P/Es have climbed well over the preferred values.

NVDA P/E Ratio (Forward) Chart.

Data by YCharts.

However, the figures also illustrate that AMD is the cheaper option. And when comparing price-to-free-cash-flow ratios, AMD comes out on top again, with its 77 considerably lower than Nvidia's 195.

AMD shares may be expensive, but the company remains a great option if you're looking for a long-term investment. Its stock has risen nearly 3,000% over the last decade. With chip demand likely to increase as different sectors of tech expand, the company could continue on a similar trajectory.