Semiconductor stocks have been some of the biggest winners of the artificial intelligence (AI) revolution. It makes a lot of sense, too. AI chips are the brains that power and train generative AI models, helping businesses build new products and services at warp speed — ushering in a new wave of productivity, efficiency, and automation.

For the most part, however, one name emerges more often than others in the chip realm. Obviously, I’m talking about Nvidia. I can’t deny that what Nvidia has achieved over the last two years isn’t impressive. Don’t get me wrong — I’m very happy to be an investor in Nvidia stock. But as a long-term investor, I’m always looking for opportunities beyond the mainstream.

Enter Advanced Micro Devices (AMD -0.25%). With a share price decline of 31% over the last year, AMD may not look like your cup of tea. However, I’d encourage you to keep an open mind. Let’s explore how AMD is making inroads in the AI chip landscape, and why now looks like a lucrative time to buy the stock hand over fist.

AMD’s data center business is making serious headway…

AMD reports its financials across three business segments: Data center, client and gaming, and embedded. The data center segment competes directly with Nvidia, and recent trends in this business unit have really caught my eye.

The table below breaks down AMD’s data center financial profile over the last year.  Over the past year, AMD has scaled its AI data center business considerably. All the while, operating profit margins have been expanding — signaling that AMD is able to fulfill demand and build its chip business in a profitable way.

Data source: Investor Relations.

One thing to call out is that over the last six months, it may look like AMD’s chip business is beginning to show some signs slowing. I wouldn’t be caught up in that idea, though. First, the semiconductor industry tends to be cyclical. Moreover, Nvidia launched its newest graphics processing unit (GPU) architecture (Blackwell) during the fourth quarter, which likely served as some form of a headwind for AMD.

Nevertheless, AMD has nearly doubled its operating income in the chip business over the past year, while still accelerating sales by high double-digit percentages. Furthermore, the company is launching new architectures of its own later this year — and AMD’s CEO Lisa Su sounds quite confident that these products will be a big hit with customers.

Image source: Getty Images.

…and this could only be the beginning

Perhaps the biggest reason I’m excited about AMD’s future is because of the company’s proven ability to win notable customers. For example, Microsoft, Oracle, and Meta Platforms are all using AMD’s MI300 accelerators in addition to their respective Nvidia GPUs.

On top of that, Amazon — another Nvidia customer — recently made a strategic investment in AMD. This very well could signal partnership opportunities between AMD and Amazon’s thriving cloud infrastructure business.

Over the coming quarters, my outlook is that AMD’s data center business will continue generating a combination of revenue growth and margin expansion, thanks to encouraging shipment trends for MI325, MI350, MI355, and MI400 series chipsets.

Is AMD stock a buy?

Right now, AMD’s forward price-to-earnings (P/E) multiple is hovering well below its 10-year average.

AMD PE Ratio (Forward) data by YCharts.

It seems to me that investors are questioning AMD’s ability to capture rising AI infrastructure spend from the hyperscalers. What I find perplexing, however, is that AMD has already proven it can do this, but for some reason the company isn’t getting much credit for the growth in its data center business.

In my eyes, AMD is a no-brainer buying opportunity right now, and investors should consider taking advantage of the disparity in its current valuation multiples compared to historical trends. I think the stock is cheap based on forward earnings, and long-term investors should consider holding on to a position in AMD over the next several years.