Market analyst positions AMD to capture significant share of the $1 trillion AI infrastructure capex wave.

AI stocks have experienced a significant pullback in recent weeks, which analysts view as a healthy correction. Rob Sluymer, technical strategist at RBC Wealth Management, noted that AI stocks have stabilized at levels they can sustain for the rest of the year, with technical indicators showing they have moved from overbought to oversold territory. "Now that positions have been unwound, there's an opportunity for traders to take positions," Sluymer said. Dan Ives of Wedbush concurred, reiterating that the market remains in the early stages of the AI bull market. "If you look at what we've seen from AI revolution to broader tech, it's been strong from an earnings perspective. And the growth scare that we saw, it's just a bump in the road to what I believe is the fourth industrial revolution playing out," Ives said.

Advanced Micro Devices, Inc (NASDAQ:AMD), which ranks 6th on a list of trending AI stocks, is positioned to capture a meaningful portion of the growing AI opportunity. Dan Ives stated: "On the semi front, Advanced Micro Devices, Inc. (NASDAQ:AMD) is now on the cusp of getting a piece of the growing AI $1 trillion of Cap Ex we expect to see over the next few years with the Godfather of AI Jensen and Nvidia leading the charge."

AMD delivered solid second-quarter results with strong data center performance, where revenue grew 49% year over year. The company is launching its Instinct™ MI300 Series accelerators designed for AI and HPC workloads, which compete with Nvidia's H100 AI chip. AMD plans to release new AI chips annually, including the MI325X in Q4 this year, the MI350 in 2025, and the MI400 in 2026, with the MI350 positioned as a competitor to Nvidia's Blackwell.

AMD's data center business doubled its revenue while the segment's operating income increased by 405% compared to the year-earlier period. However, the data center business remains substantially smaller than Nvidia's, generating about $2.8 billion in revenue compared to NVDA's $22.6 billion in quarterly revenue. AMD's other businesses are also performing well—Ryzen CPU sales increased 49% year over year, and Radeon 6000 GPUs saw a year-over-year sales increase, though gaming revenue declined 59% due to decreased PlayStation and Xbox sales.

Trading 17% below its 3-year average P/E ratio, AMD appears attractively valued given its growth prospects. The company is estimated to grow its EPS by 43% in the long term compared to 33% for Nvidia, with Q3 revenue expected to grow 15% on a QoQ basis. At a forward P/E of 38, the stock appears undervalued in light of growth forecasts from new chips and expected increases in AI spending. Meridian Contrarian Fund noted in its fourth quarter 2023 investor letter that changes and investments made under CEO Lisa Su have positioned AMD as a stronger competitor to Nvidia, and that "AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential."