• Shares of AMD are sliding as the company faces fierce competition in the data center GPU market.

• Given Nvidia's dominance in data center GPUs and the company's continued growth, some investors may be skeptical that AMD will ever catch up.

• Despite Nvidia's strong pulse, AMD is moving swiftly and experiencing successful results so far -- but investors don't seem to be giving the company much credit.

For the most part, chip stocks have fared well over the last couple of years. The main tailwind fueling semiconductor stocks to new highs is, of course, rising interest in artificial intelligence (AI).

One of the core pillars of the AI movement is data centers, which are equipped with chipsets known as graphics processing units (GPUs). GPUs are important pieces of hardware for generative AI development. Companies such as Nvidia (NVDA 1.69%), Taiwan Semiconductor Manufacturing, and Broadcom have all witnessed significant climbs in market value thanks to their respective roles in the GPU realm.

One name in the chip industry that hasn't captivated investors, however, is Advanced Micro Devices (AMD 2.56%). Over the last 12 months, shares of AMD have fallen by 44%. And as of this writing (Feb. 28), the stock is trading at a 52-week low.

Is now an opportunity to buy the dip in AMD stock? Read on to find out.

AMD stock is cratering, but...

At the time of this writing, AMD boasts a market capitalization of $162 billion. To put that into context, consider that Broadcom and TSMC are both closing in on trillion-dollar valuations, and Nvidia's market cap of $2.9 trillion makes it one of the most valuable companies in the world.

Data by YCharts.

As the graph above illustrates, AMD's share price of roughly $100 is its lowest point in about a year. Moreover, the company's forward price-to-earnings (P/E) ratio of 21.1 represents a two-year low.

With such a lackluster chart, investors might think it's time to run for the hills. However, smart investors understand that sometimes sell-offs are tied more to emotion than the actual operations at a company.

... the business is stronger than you think

I'll admit that analyzing AMD's business is a challenging exercise. In terms of revenue and profitability, the company isn't anywhere near Nvidia. On the surface, this might suggest that AMD simply has no place in the data center GPU landscape -- a market absolutely dominated by Nvidia.

Data by YCharts.

In my eyes, the figures above are slightly misleading. In 2024, AMD's gaming and embedded operating segments experienced noticeable declines in terms of sales and operating profits. On the flip side, however, the company's client and data center businesses experienced meaningful growth. What's happening with AMD is that the decelerating gaming and embedded businesses are eating into the growth experienced by its more AI-centered operations -- namely, the data center GPU segment.

Patience is key

I think AMD's sell-off is driven by a few factors. First, many investors seem to be making a generalized assumption that AMD will never be able to catch up to Nvidia. Given Nvidia is on the precipice of yet another record-defining growth phase underscored by its new Blackwell architecture, I can see why some investors may not be so hot on AMD.

With that said, AMD's pace of innovation shouldn't be ignored. The company's data center GPU business grew by 94% year over year in 2024, while operating profits in that business soared by 175%. These impressive unit economics are helping AMD reinvest into successor GPU chipware -- primarily GPUs set to compete with Blackwell.

This leads to a second important point. During AMD's fourth-quarter and full-year 2024 earnings call, management's guidance wasn't exactly stellar. My suspicion is that investors took the light guidance the wrong way and became even more fearful that AMD is losing momentum. While the company's new chipware is releasing after Blackwell, I don't necessarily see this as a bad thing.

Companies that are seeking alternative solutions to Nvidia -- primarily for pricing reasons -- could very well flock to AMD once its new architecture is released. Of note, AMD has already seen demand from existing Nvidia customers such as Meta Platforms and Microsoft.

I think AMD is going to have an inflection point whereby revenue and profit growth become more pronounced as the data center business scales. But until that happens, I wouldn't be surprised to see investors continue souring on the stock.

To me, these dips are compelling opportunities for long-term investors to buy AMD stock at historic bargain valuations.