Investing in a stock that has already outgrown its value may not make you a millionaire. But finding and betting on an underdog, which is yet to show its growth potential, is risky. Futuristic growth stocks can be your ticket to millionaire status, but finding that stock is also a one-in-a-million probability.
Nvidia (NASDAQ:NVDA) had that potential, with its vision for artificial intelligence (AI) and no competition. However, only those who bought Nvidia in the 2022 tech stock meltdown, when its price fell 63%, or those who bought it in 2015, when its graphics processing units (GPU) made a stir in the PC gaming space, enjoyed the rally. The AI frenzy might slow, but the revolution is here to stay.
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An undervalued stock that can help you in your millionaire journey
A new entry in the AI space that gives consumers an alternative to Nvidia is Advanced Micro Devices (NASDAQ:AMD). While AMD saw triple-digit growth in its AI game, the stock market did not acknowledge that growth as weakness in other segments slowed the overall company’s revenue and profit growth.
AMD is already an alternative to Intel in the personal computer and data center central processing unit (CPU) space. With AI, CPU computing is being replaced by GPU computing. While Nvidia doesn’t have a CPU product offering, it is firing all cylinders in GPU computing.
However, AMD still earns a significant amount of its revenue from the PC business. Hence, a slowdown in PC sales mellowed AMD’s data centre push. This year could see a PC refreshment cycle, which could boost AMD’s revenue and complement its AI sales.
AMD is a top pick of Northland analyst Gus Richard for 2025. He expects AMD to gain market share in AI GPUs, server CPUs, and the PC sector. It will also benefit from the troubles of Intel, which is struggling to find a strong leader.
Even Wall Street analysts are bullish on AMD. They have set an average price target of US$184.52, suggesting a 51% upside from the current market price of around US$121.5.
Is this stock undervalued now?
AMD has recently entered the AI game and is expanding into AI PC chips, AI data centres, and embedded chips. Profit margins are high for AMD as it outsources chip manufacturing to TSMC.
If we compare Nvidia and AMD valuations, AMD is trading at 25.5 times its forward earnings per share (EPS), which is lower than Nvidia’s forward price-to-earnings ratio of 32.8. It means investors are more bullish on Nvidia. They are willing to pay a higher amount for every $1 of EPS. After all, it has rallied exponentially in the last two years.
A five-year EPS growth forecast suggests AMD is trading at 0.33 times its 2030 EPS estimate while Nvidia is trading at one.
Remember, AMD is a cyclical stock standing at the edge of the cyclical upturn. The PC refreshment cycle and revival in AI spending budgets could drive a cyclical upturn. This could send the stock up triple-digit in the next few months.
How to invest in AMD
The best way to make money from AMD is to buy the cyclical dip and hold for the long term. In the past five years, AMD stock has seen four growth cycles when the stock surged more than 100%. One strategy could be to book profits after every 100% rally and buy more shares at the next cyclical dip.
One way to identify the dip is when AMD’s Relative Strength Index (RSI) falls below 40. RSI shows that the stock is oversold if it is below 30, and it is overbought if the RSI is above 70.
You can buy AMD stock without hesitation, as the company has a strong balance sheet and robust management with excellent implementation. AMD chief executive officer Lisa Su has been recognized for pulling AMD out of the brink of bankruptcy and making it a worthy competitor to tech giants. You can invest $10,000 in AMD for the long term and another $5,000 for opportunistic profit bookings, where you could consider buying and selling based on the RSI score.
