Advanced Micro Devices (AMD +1.33%) seemed to fall out of favor with Wall Street in the first half of 2024, with its stock down 8% year to date. For reference, chip rival Nvidia's stock increased 113% in the same period. Mediocre earnings suggested AMD had yet to make significant headway in artificial intelligence (AI), and a general pullback on tech stocks fueled the declines.
However, AMD posted its second quarter of 2024 earnings on July 30, which finally saw the chipmaker gaining in the budding industry. The company's AI-focused data center segment delivered record growth for the period alongside a sales boost in its central processing unit (CPU) division.
As a result, AMD's stock is an increasingly attractive investment. The company boasts a long growth history, with its shares up close to 5,000% over the last decade. Meanwhile, revenue and operating income have soared 312% and 169%, respectively. AMD is only just getting started in AI and could see major gains as it expands in the coming years.
So, here's the ultimate growth stock to buy with $10,000 right now.
AMD could have more room to run than Nvidia
AMD and Nvidia are often compared; both are leading competitors in the chip market. These companies collectively account for nearly the entire discrete graphics processing unit (GPU) sector and have similar dominance in AI GPUs. However, their businesses are at vastly different stages of development, illustrated by AMD's market cap at $221 billion and Nvidia's currently at $2.6 trillion.
The difference could indicate massive growth potential for AMD as it continues to make headway in artificial intelligence, an industry worth $197 billion in 2023 and expected to reach just under $2 trillion by the end of the decade. The AI market is expanding at a compound annual growth rate of 37%, suggesting there's plenty of room for Nvidia to retain its dominant market share and for AMD to carve out a lucrative role for itself.
Recent earnings show AMD doing just that. In Q2 2024, the company's data center segment posted revenue gains of 115% year over year. Meanwhile, operating income soared 405% to $743 million. Total revenue for the quarter increased by 9% despite a 59% decline in gaming revenue. The figures represent a positive shift in AMD's business as its hefty investment in AI offsets losses in other divisions.
Gaming potential
Before interest in AI rose through the roof last year, AMD was primarily known for its role in gaming. For years, the company has enjoyed significant success in selling its GPUs and CPUs directly to consumers who use these chips to build high-performance gaming PCs or powerful setups for video editing.
The company continues to profit from this sector thanks to increased CPU sales, proven by a 49% year-over-year rise in its client segment. Yet, its gaming division, which includes income from GPU and semi-custom chip sales, has been on a downward trend. The company has reasoned that declines are mainly because of lower semi-custom revenue.
NASDAQ: AMD
Key Data Points
Some of AMD's biggest semi-custom customers include Sony and Microsoft, which use these chips to power game consoles such as the PlayStation 5 and Xbox Series X|S. Sales for these consoles are often cyclical, starting strong and mostly dwindling until the next generation. Both of these consoles were launched in 2020, which could explain the lower chip sales for AMD.
However, a mid-generation console refresh could be just around the corner, with Sony reportedly working on a PlayStation 5 Pro and Microsoft likely to follow suit. New consoles would likely boost AMD's semi-custom chip sales and its gaming segment. Along with positive growth from AI and CPUs, AMD has become a well-rounded business that could be worth investing in.
AMD stock is a better value than you might think
AMD struggled to gain investors' support for much of this year as it worked to catch up in AI. Heavy investment in the generative technology and average earnings made its stock too expensive to consider. However, recent quarterly results have improved its value.
Data by YCharts
This chart shows AMD's forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are below the company's 12-month averages for both metrics. The figures suggest AMD's stock is trading at one of its best values in months.
In addition to massive potential in AI and encouraging earnings, AMD is an attractive stock to buy with $10,000 and hold long-term.
