Investors may struggle to figure out what to make of the valuation of Advanced Micro Devices (AMD 0.35%). Though its market capitalization has fallen by about half since last March, based on its trailing P/E ratio of 109, the stock still appears expensive.

Yet a deeper look suggests it may be one of the cheapest semiconductor stocks on the market right now, and a bargain that investors won't want to overlook.

AMD's value proposition

The value proposition of AMD becomes apparent when one looks beyond its pricey trailing P/E ratio. Based on its growth expectations, its forward P/E ratio is 23. That's a two-year low for that metric. Additionally, the contrast with rival Nvidia is apparent when comparing their price-to-sales (P/S) ratios. AMD's sales multiple of around 7 -- far below Nvidia's -- seems to confirm the stock is a bargain.

AMD PS Ratio data by YCharts.

Although AMD has become a leader in the CPU space, it lags behind in the GPU and AI accelerator markets. Moreover, the struggles of its gaming and embedded segments have taken a toll on its revenue growth and profit margins, further souring investors on the stock.

However, AMD has almost stemmed the revenue declines in its embedded segment. Additionally, the advent of the DeepSeek AI model suggests that in the future, other companies will be developing, training, and operating AI models more cheaply and with less powerful hardware. That could increase the appeal of AMD's lower-cost chips.

Amid these developments, AMD's financials have already begun to improve. Revenue grew by 14% to $26 billion in 2024. By comparison, in 2023, the top line fell by 4%. Also, net income for the year came in at $1.6 billion versus $854 million in 2023. These improving metrics placed downward pressure on the P/E and P/S ratios, making AMD stock a better buy at its current level.

Ultimately, Nvidia will probably remain the leading AI accelerator company. Nonetheless, the valuation gaps between these two chipmakers appear to make AMD a more compelling investment today.