Think AMD Stock Is Expensive? This Chart Might Change Your Mind

Investors may struggle to figure out what to make of the valuation of Advanced Micro Devices (NASDAQ: AMD). Though its market capitalization has fallen by about half since last March, based on its trailing P/E ratio of 109, the stock still appears expensive.

Yet a deeper look suggests it may be one of the cheapest semiconductor stocks on the market right now, and a bargain that investors won't want to overlook.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

AMD's value proposition

The value proposition of AMD becomes apparent when one looks beyond its pricey trailing P/E ratio. Based on its growth expectations, its forward P/E ratio is 23. That's a two-year low for that metric. Additionally, the contrast with rival Nvidia is apparent when comparing their price-to-sales (P/S) ratios. AMD's sales multiple of around 7 -- far below Nvidia's -- seems to confirm the stock is a bargain.

AMD PS Ratio data by YCharts.

Although AMD has become a leader in the CPU space, it lags behind in the GPU and AI accelerator markets. Moreover, the struggles of its gaming and embedded segments have taken a toll on its revenue growth and profit margins, further souring investors on the stock.

However, AMD has almost stemmed the revenue declines in its embedded segment. Additionally, the advent of the DeepSeek AI model suggests that in the future, other companies will be developing, training, and operating AI models more cheaply and with less powerful hardware. That could increase the appeal of AMD's lower-cost chips.

Amid these developments, AMD's financials have already begun to improve. Revenue grew by 14% to $26 billion in 2024. By comparison, in 2023, the top line fell by 4%. Also, net income for the year came in at $1.6 billion versus $854 million in 2023. These improving metrics placed downward pressure on the P/E and P/S ratios, making AMD stock a better buy at its current level.

Ultimately, Nvidia will probably remain the leading AI accelerator company. Nonetheless, the valuation gaps between these two chipmakers appear to make AMD a more compelling investment today.

Should you invest $1,000 in Advanced Micro Devices right now?

Before you buy stock in Advanced Micro Devices, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Advanced Micro Devices wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $765,576!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of February 28, 2025

Will Healy has positions in Advanced Micro Devices and Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.