AMD has strong fundamentals and long-term potential, but is currently overvalued relative to peers due to priced-in growth and dilution risks; not the best buy today compared to Micron.

If you had invested $10,000 in AMD stock just one year ago, you would have over $35,000 today. The stock of both companies has skyrocketed because they both manufacture chips that artificial intelligence data centers cannot afford to produce .

So, let me explain why I chose Micron over AMD over the past few years , and what I think of both stocks today. Why did artificial intelligence and proxies cause the stocks of both companies to rise, and what made me choose Micron over AMD years ago and stick with it to this day?

I will compare the latest earnings of AMD and Micron to see if my logic still holds true, and of course which of these two stocks I will buy today as a result.

There's a lot to cover, so let's start with what made these stocks rise so wildly in the first place.

AMD says that in some cases, we may see a number of CPUs that completely exceeds the number of graphics units. Lisa Su , CEO of AMD, said that the server CPU supply chain has been under pressure since the beginning of the year, given that much of this demand was not anticipated .

One week after his statement, AMD's stock jumped by nearly 10% in a single day, and the company's market capitalization reached $1 trillion for the first time in its history.

AMD's server CPU market share has been steadily rising for a long time, even before the era of artificial intelligence. Today, the company holds a huge 46% share of the X86 server market in terms of revenue.

But AMD doesn't just need to outperform Intel's x86 chips. It also competes with chips based on the ARM architecture, including ARM's new AGI CPU, and against Nvidia's custom Vera chips.

Moreover, each additional point in market share becomes more difficult than the previous one, as at some point they will try to sell to customers who are entirely dependent on their competitors or on their own custom chips.

In the last quarter, Micron's data center division generated $34 billion. This is roughly equivalent to three times the combined data center revenues of AMD and Intel.

AMD and Micron are each valued at around one trillion dollars today. Wall Street expects the two companies to nearly double their profits next year. Investors are paying more than 45 times AMD's projected next year's earnings, but less than 7 times for Micron.

In other words, AMD is about seven times more expensive than Micron per dollar of projected profit.

As I've been saying for years, this doesn't make AMD a bad company. That was never the question. The real question is whether AMD is a good investment.

In its latest earnings report, AMD posted record revenues of $11.5 billion, a 50% year-over-year increase. Their data center activity has more than doubled, driven by a continued increase in sales of Instinct graphics modules and a more than 70% rise in sales of EPYC central servers.

Furthermore, AMD expects to generate around $13 billion in revenue next quarter , and Lisa Su anticipates server revenue growth of more than 80% in the second half of this year, and an additional 70% in 2027.

However, AMD faces a significant risk that investors should be aware of. Two of the company's largest deals give both OpenAI and Meta the right to purchase up to 160 million shares each in AMD at a price of one cent per share, meaning that together OpenAI and Meta will own up to 16% of AMD after dilution as they purchase and deliver more graphics processing units .

The benchmark for the final price of these deals is for AMD stock to reach $600, and it is already exceeding that price. Therefore, if these deals are fully executed, AMD shareholders' stakes will be diluted by approximately 16%, which is a fairly significant downside .

AMD recorded gross profit margins of 56%. Micron recorded a rate of 87%. This represents roughly the same 13% jump in revenue that AMD is forecasting, but from a base that is more than four times larger.

I believe this is a major reason why Micron is trading at a much lower price-to-earnings ratio than AMD.

Okay, let's answer the big question. Which of these two high- growth AI chip stocks is the best to buy today? Now, let's decide between AMD stock and Micron stock. The best way to compare them is to find out what is actually included in the stock price.

Therefore, if AMD trades at the same ratio, the share price will be less than $250. But let's look at it from another angle instead. For AMD to be worth its value at this multiple, it will need to achieve around $35 per share next year . Wall Street expects profits of around $15.60.

Therefore, AMD will need to double its profits again from here. This is before any dilution of the shares resulting from the " OpenAI" and Meta deals I mentioned earlier.

Therefore, AMD's stock price already includes many years of rapid growth . They need to continue gaining market share in CPUs and graphics processing units to justify this, which is becoming increasingly difficult.

AMD is a great stock to own for the long term, and the company's business is doing very well . They sell CPUs and graphics processing units, so they also have longer growth prospects.

But, at more than 45 times future earnings with a potential 16% dilution of the stock on the horizon, I think the current price already reflects an ideal valuation.

Therefore, I will only buy AMD shares after a significant decline.

As for AMD, I'm waiting for either a dilution of the stock and a price drop, or for the company to generate huge profits that make its high multiples look much more sensible.