Semiconductor designer Advanced Micro Devices (NASDAQ: AMD) has been swooning lately. Despite a robust price jump last Monday, AMD’s stock is down more than 40% from its one-year high. With less than a week left in 2024, share prices have plunged 15% this year. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) stock market index gained 25% year to date.
Is AMD missing out on the artificial intelligence (AI) market boom, or is the stock a fantastic AI investment at these lower prices? On further review, a third option looks more correct — AMD is a “hold” in my book.
Archrival Nvidia (NASDAQ: NVDA) is setting the standard for AI accelerator chips and how they are used in actual computing systems, but AMD is a leading challenger to that company’s dominant position.
In October’s third-quarter report, AMD’s data center sales rose 122% year over year to $3.5 billion. The Instinct series of AI accelerators and EPYC line of server-grade processors drove this surge, and both products play important roles in training and operating large language models (LLMs).
Granted, AMD’s data center sales can’t hold a candle to Nvidia’s $30.8 billion in the same quarter. That’s not the end of the world, though.
AMD is embracing its underdog role. The company isn’t trying to set new AI standards. Instead, it makes sure its products work with the same AI software and programming techniques as Nvidia’s chips. Simplifying the switch from one hardware solution to another makes it easier to win over existing Nvidia users to AMD’s alternatives.
“Pretty much any model written for the standard framework, if you’re running on NVIDIA, you could run it on [AMD Instinct] MI300 out of the box, day 1, and it would work,” AMD’s Forrest Norrod said at a recent industry conference.
And this strategy is paying dividends. AMD’s data center growth outpaced Nvidia’s 112% annual increase in the third quarter. In other words, AMD is gaining some ground on the larger AI chip specialist.
AMD is a significant provider of AI hardware. It’s not all wine and roses, though. The soaring AI bandwagon may have surged a bit too far and too fast, and investors are taking a more critical look at this boom from a long-term perspective.
As a result, many stocks in the AI sphere have stalled or even fallen recently. Nvidia shares are up a measly 0.1% in the last month, and OpenAI partner Microsoft gained just 0.6% in the same period. Leading AI system builders Super Micro Computer and Dell dropped 7.1% and 17.2%, respectively.
