The stock market has started 2025 on a tumultuous note, with technology stocks experiencing a significant downturn. The main culprit behind this slump is a Chinese start-up called DeepSeek, which has released an AI model similar to OpenAI’s ChatGPT. What’s striking is that DeepSeek claims to have built its AI for far less than what other major players are spending.
This development has sent shockwaves through the tech industry, particularly among chip stocks. Advanced Micro Devices (AMD) has seen its shares fall by roughly 10% since news of DeepSeek began to circulate. Analysts forecast a forward price-to-earnings multiple (P/E) for AMD of 25.6, which is close to levels seen in September 2023.
However, the market’s valuation of AMD appears to be significantly lower than expected. The company’s data center business has been growing at an impressive 94% year-over-year, with operating leverage contributing to widening profit margins. On the other hand, sluggish growth from AMD’s gaming and embedded units is dragging on overall revenue and profit levels.
Analysts are modeling a proportionate rise in future earnings compared to the increase in AMD’s share price over the last year. However, this approach may be overly cautious given the company’s potential for accelerating revenue and profits from its data center business. The market seems to be applying a multiple of roughly 10x to AMD’s data center operating income, valuing the company at around $30 billion.
Considering AMD’s strong adoption by cloud hyperscalers like Microsoft and Meta Platforms, as well as its MI300 accelerators being used in these large-scale operations, the author believes this is an opportune time to invest in AMD. The company’s valuation appears to be massively discounted relative to Nvidia’s historic rise in share price, making it a lucrative opportunity for investors.
Source: https://www.fool.com/investing/2025/02/09/amds-stock-just-did-something-it-hasnt-done-since