Advanced Micro Devices (AMD) has enjoyed a remarkable surge, with over 130% growth in its shares over the past year. This rise aligns with a momentous year for artificial intelligence (AI), highlighted by the debut of OpenAI’s ChatGPT in November 2022, an event that catalyzed a surge in chip stocks. However, while AMD holds the second-largest market share in GPUs and plans to introduce a new AI chip, its current standing warrants reconsideration in light of its financial metrics.
AMD’s forward P/E has leaped by 58% to a steep 45, notwithstanding a 47% plunge in free cash flow to just over $1 billion. This valuation positions AMD as a risky investment compared to AI stocks trading at more favorable prices or boasting stronger financial health.
Data by YCharts
Illustrated by the chart, AMD exhibits the second-highest forward P/E among leading AI firms, spotlighting a lack of value compared to companies like Microsoft and Intel. Consequently, alternative stocks may hold more appeal while waiting for AMD’s shares to reach a more enticing price point.
1. Microsoft
Microsoft emerged as a formidable player in AI, leveraging its heavy investment in OpenAI to access the startup’s most advanced AI models. This investment has enabled Microsoft to integrate AI features across its products and services, including Azure, Bing, and its Office suite.
Furthermore, Microsoft’s introduction of the AI assistant, Copilot, represents an avenue for monetization, offered as a $30 per month add-on to its Microsoft 365 subscription. With over $62 billion in free cash flow in 2023 and a significantly lower forward P/E than AMD, Microsoft’s AI potential positions it as a top contender for investment in 2024.
2. Intel
Intel’s shares experienced a nearly 13% decline following its Q4 2023 earnings release, which noted revenue growth exceeding Wall Street estimates by $230 million. Despite gains in the PC market, weak guidance for Q1 2024 contributed to this plummet.
Intel’s proactive investments in generative technology and AI chips, such as Gaudi3 and Core Ultra processors, foreshadow opportunity amidst present challenges. With a forward P/E of 32, Intel emerges as a compelling, value-focused AI stock, potentially reaping significant long-term gains compared to AMD.
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