AMD (AMD 2.37%) stock has been in rally mode again. It has less to do with the Q3 2023 earnings update and more to do with AMD management palling around with other high-tech executives touting the merits of the upcoming MI300X chip system for AI. AMD stock has now more than doubled in value in 2023 in an AI-fueled rally, and it's homing back in on all-time highs after the MI300X event in early December.

But like all semiconductor stocks laying the groundwork for the AI movement, AMD trades for a high premium. Is it still a buy for 2024?

Move over, Nvidia -- AMD wants a seat at the AI table

The current hype surrounding generative AI infrastructure really got ignited by Nvidia and its explosive data center revenue earlier this year. At this point, the market for AI training -- where a company's data is used to customize an algorithm that can create new digital content on command -- is dominated by Nvidia. At the AI event on Dec. 6, AMD CEO Lisa Su claimed the MI300X has reached performance parity with comparable Nvidia systems in AI training.

However, the inference market -- when the trained AI algorithm is put into use -- is more open range. That's where AMD is talking up the performance of the MI300X. Su claims the chip system is capable of performing 1.4 times to 1.6 times better than the competition.

But why all the hoopla in the first place? The value of existing data centers worldwide has been estimated at roughly $1 trillion, and the computing infrastructure within it needs to be refreshed or replaced every four to five years. Generative AI infrastructure is now being layered in on that existing data center base, and it's been posited this new AI buildout could roughly double the value of the data center market by the end of this decade.

To wit, Su said that AMD believed that annual AI infrastructure spend would go from "something like $30 billion in 2023 to more than $150 billion in 2027." But after all that has unfolded in the last year, Su says AMD now thinks the data center AI market (AI accelerator systems like the MI300X) will reach "over 400 billion in 2027."

If that's even a remotely accurate estimate, AMD could have much to gain. And it explains why the tech industry at large is flocking to AMD (as well as Nvidia) AI events. Su and company were joined on stage by executives at Microsoft, Meta Platforms, Dell, and Super Micro Computer to sing the praises of the MI300X.

A premium is warranted, but how much?

All the hype aside, AMD's AI chip business is still far behind Nvidia's. No financial update was provided at the December AI event, but about a month prior, Su said on AMD's Q3 2023 earnings update that AI accelerator sales could "exceed $2 billion" in 2024, up from about $400 million in 2023.

It's a stellar growth outlook, but AMD is a broadly diversified company that's on pace to bring in nearly $23 billion in total sales this year. All on its own, the MI300X is no reason to buy AMD stock, which currently trades for a premium of 35 times Wall Street analysts' expectations for 2024 earnings per share.

I'm a happy AMD shareholder, but I'm taking a more cautious approach to the AI hype. That said, I think there are other reasons to be optimistic about AMD's 2024 prospects. It looks like the PC market is stabilizing, and robust profitability could make a comeback. That seems to be a forgotten part of the AMD story that could provide possible upside for the stock.

Nevertheless, until more clarity is provided on what's coming down the pike in 2024 as far as finances go, I think AMD stock is best bought in smaller batches right now, perhaps using a dollar-cost averaging plan.