Chip stocks captivated Wall Street this year as the artificial intelligence (AI) market has exploded. Demand for high-powered hardware has skyrocketed as more companies pivot their businesses to developing the sector. Chipmakers like Advanced Micro Devices (AMD -1.96%) and Nvidia are well positioned to profit substantially from AI over the long term, with bullish investors sending their stocks soaring 87% and 220%, respectively, since Jan. 1.

Nvidia has taken center stage in AI since the start of 2023, getting a head start over its competitors and snapping up a majority-market share. However, AMD has looked like an attractive alternative to invest in the booming industry, with potentially more room for growth ahead of it.

So, is it too late to invest in AMD stock? Let's find out.

The most expensive stock in AI

AMD's stock has risen high this year based on its prospects in artificial intelligence. However, earnings have yet to match its valuation.

In 2022, macroeconomic headwinds caused reduced spending in the PC market and led to steep declines in AMD's chip sales. The market has improved this year, but the company still faced residual challenges.

In the third quarter of 2023, data-center revenue fell 1% year over year, while its gaming segment tumbled 8%. Comparatively, the same quarter saw Nvidia's data-center and gaming revenue climb 279% and 81%, respectively.

AMD PE Ratio Chart

Data by YCharts.

AMD's rapid stock rise and dismal earnings have made it one of the most expensive stocks in AI right now. The chart above compares the price-to-earnings ratios and price-to-free cash flows of some of the biggest names in tech and AI, with AMD shares losing out on both fronts. The figures show that AMD's stock offers the least value out of these companies.

The tech giant likely has much to offer over the long term, but it might be best to look at other investment options until its share price comes down to a more attractive price point.

Can investors expect much growth from AMD stock?

AMD has made investors bullish this year as it moved to challenge Nvidia's AI dominance in 2024.

In June, the company unveiled the newest addition to its MI300 lineup of chips with what it calls its most powerful graphics processing unit (GPU) ever, the MI300X. Anticipation for the chip has grown since Microsoft announced last month that Azure would become the first cloud service to begin using the GPU. The MI300X will begin shipping next year and could shake up the AI chip market if it can offer a competitive price-to-performance ratio.

Moreover, purchases of AI start-ups Nod.ai and Mipsology this year provided more proof of AMD's significant potential in the market as it expands its technology and resources. These acquisitions could help the company create GPU software that allows developers to get the most out of its chips.

AMD likely has much to gain from AI over the next decade. However, the company's high valuation indicates much of its projected financial growth is already priced into its shares.

For reference, Nvidia has experienced a similar issue. The chipmaker delivered stellar Q3 2024 (ended October 2023) results, with revenue jumping 206% year over year and operating income up over 1,600%. However, Nvidia's stock has actually dipped 7% since its earnings release.

Nvidia's business has exploded alongside soaring AI chip sales, but stockholders seem unwilling to invest further until it can match its current valuation.

Heading into 2024, AMD has a lot to live up to. Its stock price is sky-high, with investors betting on the success of its new AI chips.

Judging by how high Nvidia sales have soared this year, AMD could enjoy significant boosts to revenue. However, it is unlikely to positively affect the company's stock price.

As a result, it's too late to invest in AMD's stock this year, but it remains a company worth keeping on your radar to strike when the time is right.