Think Twice Before Jumping on the AMD AI Bandwagon
Why would the experts on Wall Street be so bullish on Advanced Micro Devices (NASDAQ:AMD) stock now? Probably, a major consideration is the company’s ambitious development of hardware to support artificial intelligence applications.
But before you take a share position in AMD, consider whether you’re getting in at the best possible time.
After all, the last thing you want to be is a price chaser or a latecomer to the AI-investment party. Sure, you’ll probably do well with a very long-term position in AMD.
Ultimately, it’s a matter of time frame, patience and perceived risk-to-reward, which will vary from one financial trader to another.
Analysts and AI Investors Really Like Advanced Micro Devices
AMD definitely wasn’t the first AI-compatible hardware maker. Still, the market certainly was glad to hear that AMD is ready and able to deploy top-of-the-line AI-focused hardware in 2023.
The official AMD blog concisely sums up the company’s AI-compatible hardware projects and projects.
First, there’s Ryzen AI, “the first dedicated AI hardware in an X86 processor.” Also, AMD EPYC is being used in combination with other products to help train “AI models to detect cancer diagnosis faster and with more accuracy.”
There’s a collaboration with NASA to deploy AMD Virtex FPGAs “to bring AI and computer vision to a space exploration rover for the first time.”
The market is fully aware of these developments, of course. Since AI is all the rage in 2023, perhaps it shouldn’t be too surprising that, out of 29 analysts, 22 issued a “buy” or equivalent rating on AMD stock.
Meanwhile, seven analysts issued a “hold” or equivalent rating on AMD shares, and none of them issued a “sell” or equivalent rating.
How Pricey Is AMD Stock Now?
Analysts and many financial traders know that AMD’s AI chips perform well. Anyone who invested in AMD at the start of 2023 is firmly in the green today.
This raises the question of whether “AI fever” has already been priced into AMD stock. Maybe, this doesn’t matter so much if you can handle a share-price drawdown. It also helps if you measure your investment time frame in years rather than months.
Just be aware that value-focused investors might object to AMD’s current valuation. Believe it or not, Advanced Micro Devices has a GAAP trailing 12-month (TTM) price-to-earnings (P/E) ratio of 477.81x (versus the sector median of P/E ratio 24.79x).
Additionally, AMD has a TTM price-to-sales (P/S) ratio of 7.95x. This greatly exceeds the sector median P/S ratio of 2.83x. Furthermore, Qualcomm’s TTM price-to-book (P/B) ratio of 3.34x is somewhat higher than the sector median P/B ratio of 3.08x.
AMD Stock Isn’t a Screaming Bargain Now
In other words, value-focused investors probably wouldn’t pick AMD stock as a bargain-basement buy. Unless you’re planning to hold the shares for a long time, you might choose to wait for a pullback.
That pullback might not happen anytime soon. It would be frustrating to watch AMD’s investors ride the AI wave if you’re not participating.
In the final analysis, it’s fine to consider a share position in AMD stock. After all, Wall Street’s experts seem to favor it now. Just be ready for possible near-term volatility, especially if the market determines that Advanced Micro Devices is too richly valued.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
