synopsis

CEO Lisa Su said the new stock buyback authorization underlined the board's confidence in the company's strategic direction, growth prospects, and ability to consistently generate strong free cash flow.

With Nvidia Corp. (NVDA) stock becoming pricier following a recent rally, an investor highlighted the next best artificial intelligence (AI) play that could prove to be a bargain buy.

Scott Nations, president and chief investment officer at Fortress Trading unit Nations Indexes, told CNBC that investors should chase shares of Advanced Micro Devices, Inc. (AMD), capitalizing on a slew of positive headlines surrounding the chipmaker.

Nations Indexes compiles volatility and option cost indices and offers investors and traders solutions for making more money. 

AMD closed Wednesday's session up 4.68% at $117.72, after the company announced a new $6 billion stock buyback authorization. CEO Lisa Su said the action underlined the board's confidence in the company's strategic direction, growth prospects, and ability to generate strong free cash flow consistently.

The stock has been on a four-session winning spree, as it lock-stepped with the broader market, which has been on a tear lately, benefiting from the China trade deal and a tamer inflation print.

On Tuesday, AMD announced a $10 billion strategic collaboration with Saudi Arabian AI company Humain to power its 500 megawatts AI infrastructure with its full spectrum of AI compute and the AMD ROCm open software ecosystem.

On the same day, the Santa Clara, California-based chipmaker also launched its EPYC 4005 Series server processors. AMD said these CPUs "deliver the performance, features, and efficiency growing businesses need to power everything from enterprise applications and virtualized environments to dedicated, all-day hosted services in the cloud."

Nations said AMD could be a better bet for an investor seeking exposure to the AI space, given that the stock still traded at a 35% discount to its 52-week high. 

According to Koyfin data, AMD's forward 12-month price-earnings multiple is 27.9 times compared to Nvidia's 30.8.

On Stocktwits, retail sentiment toward AMD stock was 'extremely bullish' (86/100) by late Tuesday, and the message volume was 'extremely high.'

AMD sentiment and message volume as of 2:44 a.m., May 15 | source: Stocktwits

A watcher said the buyback is "very bullish" for the stock.

Another user said AMD has a tall order breaking above the $120-$130 resistance, but viewed the trend as similar to the cyclical decline in 2021-23 before the stock ran to an all-time high.

The consensus analysts' price target for AMD is $126.29, suggesting a 7% upside potential.

AMD’s stock is down about 7.5% year-to-date, with the one-year loss at a steeper 22%.

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