With its share price down 12% over the past month, investors should take full advantage of the dip in Advanced Micro Devices (NASDAQ:AMD) stock before it once again skyrockets. AMD stock is down 6% since the microchip and semiconductor designer reported its first-quarter financial results.
AMD stock fell despite exceeding Wall Street estimates and raising guidance, as investors desired stronger growth. The initial reaction ignores AMD’s impressive growth in AI microchips. Despite the recent dip, AMD stock is up nearly 440% in the last five years, including a 68% increase in the past 12 months.
A Strong Print
AMD stock fell on news that the company narrowly beat Wall Street forecasts for this year’s first three months and provided in-line guidance.
The chip designer announced earnings per share of 62 cents compared to 61 cents that was the consensus expectation among analysts. Revenue in Q1 totaled $5.47 billion versus $5.46 billion that was forecast. Sales rose only 2% from a year earlier.
While the headline numbers may have been a bit uninspiring, a deeper dive into the numbers reveals some exciting data points.
AMD reported that revenue at its Data Center unit grew 80% year over year to $2.3 billion due to robust sales of its new MI300 series AI chips. The company said it has sold more than $1 billion of the AI chips since they launched late last year.
At the same time, AMD’s core business making processors for personal computers reported $1.4 billion in Q1 sales, an 85% annual increase. The growth shows that the PC sales slump is over.
The only weakness at the company was in its video game segment, which saw chip sales drop 48% to $922 million as global sales of video game consoles declines.
While the Q1 results were strong, the forward guidance provided by AMD was even better. Management again revised up their forecast for AI chip sales this year, pegging them at $4 billion, up from $3.5 billion only a few months ago.
Last fall, AMD was predicting $2 billion of AI chip sales in 2024. On their earnings call with analysts and media, executives said that they are already working on new AI chips and successors to the current generation of processors that have only been available for about six months.
Unfair Comparisons
AMD stock often gets dinged because it is unfairly compared to rival chipmaker Nvidia (NASDAQ:NVDA). Nvidia, which controls between 75% and 80% of the global market for AI chips, has experienced parabolic growth over the past two years. Its share price is up 2,000% in the last five years.
Investors need to keep in mind that AMD is a different company than Nvidia. Until recently, the company primarily supplied chips and semiconductors to video game and PC manufacturers. It has pivoted to focus on AI chips.
The switch to AI chips has been impressive, with AMD putting out excellent technology that is helping to win it market share.
The company’s AI chips are being gobbled up by PC makers such as Dell Technologies (NYSE:DELL) and HP (NYSE:HPQ), which plan to incorporate them into next generation laptops and computers.
At the same time, AI leaders such as Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT) have placed billion dollar orders to purchase the MI300X series chips.
Bullish analysts expect that AMD’s share of the AI chip market will reach as much as 25% by the end of this year as the company gains ground on Nvidia and takes market share from Intel (NASDAQ:INTC).
Controlling a quarter of the market for AI chips would be a huge business for AMD. The growth of the company’s AI chip business is the reason 34 professional analysts currently rate AMD stock a “strong buy” with a median price target that is nearly 30% higher than current levels.
Buy AMD Stock
The stock of Advanced Micro Devices is not likely to be down for long, especially as its AI chip business continues to grow at an accelerated rate.
While the company continues to beat Wall Street’s forecast for its earnings, a closer look at the numbers reveals explosive growth in its AI business. As it gains a larger share of the AI chip market, AMD’s growth is likely to explode in coming years, rewarding shareholders.
That the share price is currently 28% lower than where analysts think it should be is another reason to buy AMD stock.
On the date of publication, Joel Baglole held long positions in NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.