Shares of established semiconductor company Advanced Micro Devices (NASDAQ:AMD) appear significantly overvalued at their current price level considering the company's bleak growth prospects. So, for investors looking to capitalize on the growing demand for chips, we think it could be wise to instead invest in Applied Materials (NASDAQ:AMAT), Lam Research (NASDAQ:LRCX), and Analog Devices (NASDAQ:ADI). These three companies possess sound financials and are well-positioned to capitalize on the industry tailwinds. So, let’s examine these names.As one of the popular players in the semiconductor space, the shares of Santa Clara, Calif.-based Advanced Micro Devices, Inc (AMD) have gained 36.9% in price over the past three months to close yesterday’s trading session at $107.27, after hitting their $122.49, 52-week high. The company recently launched its AMD Radeon RX 6600 XT graphics card, which is designed to deliver the ultimate high-framerate, high-fidelity, and highly responsive 1080p gaming experience.
However, AMD’s trailing-12-month gross profit margin and CAPEX/Sales are 45.71% and 2.08%, respectively, compared unfavorably with the 49.04% and 2.28% industry averages. Moreover, the stock is currently trading at an expensive valuation. In terms of forward Price-to-Book ratio, AMD’s 15.39x is 156.3% higher than the 6x industry average. In addition, the stock’s 8.33x forward P/S is 103.2% higher than the 4.10x industry average. So, it’s wise to wait for a better entry point in the stock.
Nevertheless, the industry looks attractive right currently. Because the governments of several countries are investing heavily to address the semiconductor chip shortage, prominent players in this space should benefit from the rising demand for semiconductors from several industries. According to a SpendEdge report, the global semiconductor market will grow at a 6.8% CAGR from 2021 - 2025.