Should You Buy Advanced Micro Devices (AMD) Stock After Its 51% Drop?

Core Viewpoint - The stock market is experiencing a sell-off, with Advanced Micro Devices (AMD) stock down 51% from its peak, presenting a potential buying opportunity for investors as the company prepares for significant growth in its data center business, particularly in AI-related applications [1][3][18] Company Performance - AMD's data center business achieved record revenue of $12.6 billion in 2024, reflecting a remarkable growth of 94% year-over-year, although it still lags behind Nvidia's $115.1 billion in the same segment [10] - Total revenue for AMD in 2024 was $25.8 billion, marking a 14% increase from the previous year, with significant contributions from the data center and client segments [9][10] - The client segment generated $7 billion in revenue, a 52% increase from the prior year, indicating strong growth potential [11] Product Development - AMD's MI300X GPU has attracted major AI customers like Meta, Oracle, and Microsoft, but the upcoming MI350 GPU, based on the new CDNA 4 architecture, is expected to significantly enhance performance, potentially outperforming Nvidia's GB200 [4][6][8] - The MI350 is currently being sampled to customers, with production expected to ramp up mid-year, although it faces competition from Nvidia's already deployed GPUs [5][6] Market Outlook - Major tech companies, including Meta, Microsoft, Alphabet, and Amazon, are projected to spend over $300 billion on data center infrastructure and chips in 2025, creating a substantial market opportunity for AMD [8] - AMD's gaming revenue fell by 58% in 2024 due to delays in product releases, but the recent launch of the Radeon 9070 gaming GPU may help recover this segment [13] - The embedded segment saw a revenue decline of 33% last year, but AMD anticipates growth in this area for 2025 [14] Valuation and Investment Opportunity - AMD's stock is currently trading at a P/E ratio of 30.3, which is a 19% discount compared to Nvidia's P/E ratio of 37.7, suggesting it may be undervalued [15] - Wall Street estimates indicate AMD's EPS could grow to $4.70 in 2025, implying a forward P/E ratio of 21.3, necessitating a stock price increase of over 40% to maintain its current valuation [16] - The significant hardware spending anticipated from major tech firms positions AMD for another record year in its data center business, alongside expected recovery in its gaming and embedded segments [17]