The recent volatility in the stock market has created some interesting buying opportunities. Shares of Advanced Micro Devices(NASDAQ: AMD) and Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) are trading down 25% and 15%, respectively, from recent all-time highs, but their forward price-to-earnings (P/E) ratios based on 2025 earnings estimates look modest.
The momentum these two Nasdaq stocks are seeing in their businesses this year could set them up for sharp share price rebounds over the next year. Let's take a closer look at why you should consider buying each stock on the dip.
1. Advanced Micro Devices
AMD's 25% share-price dip has brought the stock's forward P/E down to 28 based on 2025 earnings estimates. This rate is still a bit higher than the Nasdaq-100's average forward P/E of 25.4, but Wall Street analysts expect AMD's earnings to grow at an annualized rate of 41% over the next several years. When you buy a stock with outstanding growth prospects at a P/E that is not much higher than the average stock, you're setting yourself up for excellent returns.
AMD makes chips for a variety of consumer and industrial markets, but the data center segment produces the largest portion of its sales. Data center revenue more than doubled year over year to $2.8 billion in Q2, driven by strong demand for its Instinct graphics processing units (GPUs) and EPYC central processing units (CPUs).
AMD clearly benefits from the shift to GPU-based computing systems for AI workloads. Data centers are upgrading their hardware to handle the processing-power demands of AI training and use. Future AI models will require significant increases in computing power, which will benefit AMD.
While AMD runs a distant second to Nvidia in the GPU market, it is growing its data center revenue at similarly high rates. Nvidia posted data center growth of 154% year over year last quarter compared to AMD's 115%. AMD expects to launch its new Instinct MI325X accelerator in Q4. The current MI300X chip was a key driver of data center growth this year, and the new version will bring better performance that should keep the momentum going.
Analysts expect AMD's earnings to grow by 60% next year. The stock's forward P/E multiple of 28 is low enough that investors can expect the share price to climb along with the underlying growth in the business. Given those earnings estimates, AMD stock could deliver incredible returns in 2025 and beyond.
2. Alphabet
Alphabet is well-positioned for growth in the AI era. The company is leveraging this technology to benefit its Google Search business, where it leads the digital advertising market. The shares currently trade at an attractive forward P/E of 18 based on 2025 earnings estimates, which seems like a bargain relative to Wall Street analysts' consensus expectation for double-digit percentage earnings growth next year.
The recovery in the digital ad market has benefited Google. Advertising revenue grew 11% year over year in Q2. Wall Street analysts expect the company to report revenue growth of 13% in 2024, with earnings expected to be up 31%.
This year's growth follows the launch of Google's Gemini AI model at the end of 2023. Gemini can understand text, images, audio, and video. It is powering six Alphabet products that have over 2 billion monthly users each. And it's going to bring significant improvements to how people interact with Google Search, which could benefit the company's ad revenue.
Gemini will also benefit Alphabet's cloud enterprise service, where it can assist developers with coding and other tasks. Google Cloud continues to gain share in a $300 billion market. Importantly, it is starting to turn a healthy profit, with operating income tripling over the year-ago quarter to $1.1 billion.
The company's legal battles over antitrust issues are overshadowing its opportunities. Analysts expect earnings to grow 14% next year to $8.70 per share. The stock's relatively low forward P/E ratio sets the stage for a sharp rebound in the share price over the next year. Assuming Alphabet can meet the long-term earnings growth estimate of 16% on an annualized basis, the stock could double by 2029.
Should you invest $1,000 in Advanced Micro Devices right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, and Nvidia. The Motley Fool has a disclosure policy.
