Is it too late to buy AMD stock?

Artificial Intelligence (AI) technology has made a big splash in the last year. This has had a significant impact onAdvanced Micro Devicesfirms(NASDAQ: AMD)The production of high-performance semiconductor chips has created an explosive demand.

As a result, AMD's share price more than doubled from a 52-week low of $81.02 in May of last year to a high of $227.30 in March of this year. Since then, AMD's share price has fallen along with the stock market bandwagon.

While AMD's stock price has risen spectacularly, has the decline created a buying opportunity? To answer this question, we need to take a closer look at AMD.

AMD's Mixed Demand Environment

AMD's AI chips are proving to be a boon to the company's data center-focused division. This is understandable, as AI systems require a lot of data and computing power, both of which are present in these cloud computing venues.

As a result, AMD's data center division reported an impressive year-over-year revenue increase of 38% in the fourth quarter to $2.3 billion, and AMD's Koon team expects the division's sales to continue to grow through 2024. However, the outlook for the chipmaker is not good.

By 2023, AMD's revenue is $22.7 billion, down 4% from $23.6 billion in 2022.Why is AMD's revenue down slightly year-over-year in the midst of a booming AI market?

AMD has always relied on two business units for the majority of its revenue. These are the personal computer and video game divisions.

In 2022, these two divisions generated $13 billion of AMD's $23.6 billion in sales. However, in 2023, they will generate $10.9 billion, less than half of AMD's $22.7 billion in revenue.

This decline is part of the cyclical nature of the semiconductor industry. In fact, the current lukewarm demand for chips in the gaming industry means that AMD's gaming division is expected to remain sluggish in 2024. Koon expects the division's revenue to decline by double digits from 2023.

In addition, the company forecasts that its Embedded Division, which includes AMD's products for commercial and industrial applications, will also see a decline in revenue in 2024. This is due to customers' overstocking of products.

The Embedded Division is a new business for AMD following the acquisition of Xilinx in 2022. Last year, AMD's Embedded Division generated $5.3 billion in revenue.

AMD's Future

It's not all doom and gloom for AMD. The company's PC business is set to rebound in 2024. That's largely thanks to the addition of artificial intelligence chips to the latest lineup of consumer devices like laptops.

In the short term, the expected decline in the games and embedded businesses means that AMD's first-quarter revenue is expected to be around $5.4 billion. That's flat compared to the same period last year.

Despite a poor first quarter, AMD expects the growth of AI technology to eventually encompass all areas of its business over the long term.

According to Matrix Executive Officer Liza Pearce on the Q4 earnings call, "Taking a step back, we believe that AI is a once-in-a-generation transformation that will reshape virtually every part of the computing market, starting with data centers and then expanding to PCs and multiple embedded markets."

Artificial Intelligence is undoubtedly a transformative technology, but it is still in its early stages. It is predicted that the global AI market will reach US$184 billion in 2024 and will expand rapidly in the next few years to reach US$827 billion by 2030.

To Buy or Not to Buy AMD Stock

Growth in the artificial intelligence market will provide AMD with years of revenue growth, which will be further fueled by the company's gaming business when it finally recovers. In addition, management expects its embedded business to rebound in the second half of the year.

Given these developments, AMD is positioned to deliver long-term revenue growth, making its stock a good long-term investment.

In addition, Wall Street analysts currently have a consensus rating of Hold on AMD stock, with a median share price of $195. This suggests that analysts believe AMD's stock price has room to grow.

However, given AMD's mixed business results for 2023, Koon's low expectations for the first quarter, and the stock's uptick in recent months, it's prudent to err on the side of caution based on your risk tolerance.

In this case, a good strategy is to buy the stock using the average dollar cost method. Take a small position in AMD stock and add to it over time. Occasional price declines are less detrimental to this approach because you end up with more shares at a lower cost.

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Robert Izquierdo owns shares of Advanced Micro Devices. the Motley Fool owns shares of Advanced Micro Devices and recommends Advanced Micro Devices. the Motley Fool maintains a disclosure policy.

Is It Too Late to Buy AMD Stock? This post was originally published by The Motley Fool.