NVIDIA (NVDA -5.12%) And modern micro devices (AMD -1.16%) have experienced varying degrees of success on the stock market so far in 2024. While one of these semiconductor stocks has seen excellent gains, the other has not been particularly appreciated on Wall Street.

Nvidia stock is up more than 116% for 2024, while AMD has fallen short of expectations. PHLX Semiconductor Sector Index with a large gap. This can be seen in the following graph.

^SOX data from YCharts

Nvidia’s huge profits can be justified by the impressive growth the company has seen in recent quarters, thanks to healthy demand for its artificial intelligence (AI) chips. In the first quarter of fiscal 2025 (which ended April 28), the company’s revenue rose a whopping 262% year over year to $26 billion. The company also saw a whopping 461% year over year increase in non-GAAP adjusted earnings per share.

However, the solid rise in Nvidia stock has made it quite expensive. It now trades at 63 times earnings and 33 times sales. AMD’s poor performance in the market means investors can currently buy it for less than 10 times sales. Additionally, AMD’s forward earnings multiple of 40 is almost equal to Nvidia’s forward price-to-earnings ratio.

Let’s look at the reasons why buying AMD could be a smart move for investors who missed Nvidia’s grand run.

AMD’s AI-focused data center business gains momentum

AMD released its second-quarter 2024 results on July 30. The chipmaker’s total revenue rose 9% year-over-year to $5.84 billion, while adjusted earnings rose eightfold from the same period last year to $0.16 per share. The numbers beat consensus expectations, and more importantly, AMD’s forecast also beat Wall Street estimates.

The company has forecast revenue of $6.7 billion for the current quarter, which is the midpoint of its forecast range. That would be a 16% year-over-year improvement, suggesting AMD’s growth will accelerate in the current quarter. Analysts had expected AMD to forecast revenue of $6.62 billion in the second quarter.

The main reason AMD is forecasting an acceleration in its revenue growth in the third quarter is the solid momentum its data center business has gained. The company reported record revenue of $2.8 billion in its data center business last quarter, up 115% from the same period last year. This robust growth was driven by growing demand for AMD’s Instinct data center graphics cards, which are used for AI training and inferencing.

The chipmaker noted that it sold $1 billion worth of its MI300X AI accelerators last quarter. In addition, it raised its full-year AI graphics processing unit (GPU) forecast to $4.5 billion, up from the previous estimate of $4 billion. However, it would not be a surprise to see AMD finish the year with stronger data center GPU sales, as the company says it is “working very closely with our systems and cloud partners to increase availability of MI300 solutions to meet growing customer demand.”

There is a good chance that AMD, as a foundry partner, can increase the production of its AI GPUs Semiconductor manufacturing in Taiwan plans to increase its advanced packaging capacity by 60% annually by 2026 to produce more AI chips.

In addition, investors can expect AMD to continue to see healthy growth in both data center GPUs and central processing units (CPUs) over the long term, as the overall AI accelerator market is estimated to grow 27% annually through 2029, reaching nearly $373 billion in revenue at the end of the forecast period.

AMD is gaining traction in AI chips and is expected to grow even faster in the current quarter, so it’s easy to see why investors are optimistic about the company’s prospects and why the stock rose more than 6% following the release of quarterly results.

Investors can expect stronger growth from AMD

Analysts expect AMD’s revenue to rise nearly 13% to $25.6 billion this year, but as the chart below shows, the company is expected to grow faster in 2025 and post healthy double-digit growth in 2026.

AMD revenue estimates for the current fiscal year, data from YCharts

And it gets even better: Analysts are forecasting solid earnings growth for AMD after the stock has already risen 27% this year to $3.38 per share.

AMD EPS estimates for the current fiscal year, data from YCharts

AMD could sustain this impressive growth over the long term, as its earnings are expected to grow at a compound annual growth rate of 33% over the next five years. Investors looking for a cheaper alternative to Nvidia to capitalize on the AI ​​revolution would therefore do well to buy AMD, as the company could experience an impressive long-term upswing thanks to growing demand for its AI chips.