The stock market has got off to an interesting start this year. During the first few weeks of 2025, technology stocks in particular showed similar levels of momentum seen for the majority of the past two years. This is largely thanks to the continued support of AI (AI) stories.
However, euphoria came to a halt in late January after a Chinese startup called Deepseek released an AI model similar to Openai’s ChatGpt.
What surprised investors is that Deepseek claims to have built AI for far less than what Openai, humanity, confusion and other AI startups in the US are spending. is. Naturally, tech stocks have been declining sharply over the past few weeks. The chip stock in particular is really shaking.
Since Deepseek news began to be featured in late January, Advanced Micro Devices(NASDAQ:AMD) It has decreased by about 10%. Below we will analyze some interesting trends in AMD ratings and see if this is a good time to buy chip leader stocks.
The metric I find useful is Profit from positive prices Multiple (P/E). This ratio takes into account what Wall Street analysts are forecasting the company’s future revenue. This helps you get a glimpse into how industry experts see a company’s growth outlook compared to its peers.
The table below summarizes AMD’s forward P/E and market capitalization as of last year’s quarter end.
category
9/30/2023
12/31/2023
3/31/2024
6/30/2024
9/30/2024
the current
Forward P/E
24.6
39.4
53.8
47.4
30.1
25.6
Market capitalization
$166 billion
$238 billion
$29.2 billion
$262 billion
$265 billion
$194 billion
Data Source: Yahoo! Finance
AMD’s forward P/E at 25.6 is essentially correct based on the level seen in September 2023. The important difference I see is that the company’s market capitalization has increased by about $30 billion over the last 15-month period.
Image source: Getty Images.
The slides below break down AMD revenue and operating income for 2024. In my eyes, the most important detail of this slide is the company’s data center operations, as this segment competes most closely. nvidia.
Image source: Investor relations.
Last year, AMD’s data center business grew 94% to $12.6 billion. More importantly, the company is generating significant sales leverage in this business, as seen in its growing profit margins. Unfortunately, slowing growth from AMD games and built-in units is dragging into the company’s overall revenue and profit levels.
AMD’s forward P/E proximity between now and September 2023 has been modelled by analysts to a proportional rise in future revenues compared to the rise in AMD stock price last year or there. It means there is. For this reason, the company’s forward P/E multiple remained essentially flat instead of expanding.
In other words, I think analysts are modeling both the continuous growth of the data center business. and Continuous slowdown across games and embedded chips – which balances the overall company’s earnings picture. Personally, I am not completely in line with such an approach. On a large scale, I think accelerating revenue and profits from AMD’s data center business will far outweigh other segments that are not part of the GPU push.
The way I’m looking at AMD ratings at the moment is that the market appears to be applying about a 10x multiple to the operating profit of the data center. Therefore, AMD’s value has increased by around $30 billion since September 2023.
I think AMD’s data center business is much more valuable than $30 billion in the long run. Nvidia’s calculation and networking business is much larger than AMD, with investors witnessing a historic rise in Nvidia’s stock price for most of the past two years.
We already see that AMD is already adopting the Mi300 accelerator using such cloud sensitizers Microsoft And such a high-tech giant Meta Platform (Both are also Nvidia customers), it is bullish that AMD will emerge sooner and faster than as a legitimate force in the data center realm.
We consider this a lucrative opportunity to take advantage of AMD’s price action, especially since we believe that the company is significantly discounted compared to Nvidia.
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