Following a recent market sell-off, Advanced Micro Devices (AMD) has emerged as a potentially appealing stock. Despite a decline of approximately 40% over the past year, AMD has experienced strong revenue growth, particularly in the field of artificial intelligence (AI).
Investors are questioning whether AMD’s stock can rebound and present a viable investment opportunity. AMD holds the position of the second-largest player in the graphics processing unit (GPU) market, trailing industry leader Nvidia. Although AMD has ambitions to capture more market share from Nvidia, it remains a distant second, with about a 10% market share compared to Nvidia’s 90%.
While AMD has sought to bridge this gap through enhancements to its chips and software, issues with its software have posed significant challenges. In December, SemiAnalysis, a semiconductor research company, conducted comparative tests between AMD’s and Nvidia’s chips for AI model training. The results indicated that AMD’s GPUs were not immediately usable due to software bugs, requiring extensive support from AMD engineers.
AMD has struggled to catch up with Nvidia’s CUDA software platform, introduced over a decade ago, with its ROCm platform. The reliance on open-source software libraries developed on top of Nvidia’s platform presents usability challenges for AMD’s GPUs. As a result, AMD’s GPUs find more application in well-defined AI inference cases.
Despite these challenges, AMD continues to enjoy growth in the AI infrastructure market. Its GPUs are witnessing strong gains in inference and serve as an alternative to Nvidia, which is facing capacity constraints. However, significant erosion of Nvidia’s market share by AMD remains unlikely.
In the central processing unit (CPU) sector, AMD has made substantial strides. While GPUs deliver processing power, CPUs handle information processing to ensure optimal performance of PC hardware. AMD has gained a significant share of the CPU data center market and reported last quarter that its share exceeded 50% among hyperscalers, large companies managing massive data centers. Although the data center market is smaller than the GPU market, it is rapidly expanding due to increasing AI infrastructure investment.
AMD’s data center revenue increased by 69% year over year, reaching $3.9 billion in the last quarter. For the entire year, revenue in this category surged by 94% to $12.6 billion. Additionally, AMD has increased its presence in the personal computer (PC) market with its CPUs, achieving over 70% market share on platforms such as Amazon, Newegg, and MindFactory.
While AMD seeks to grow its PC business by a mid-single-digit percentage this year, it faces challenges in the gaming sector. The current gaming consoles have been on the market without significant updates for some time, affecting demand.
As AMD’s share price has decreased, its forward price-to-earnings (P/E) ratio now stands at 22.5 times analyst estimates for 2025. The company has projected a 30% revenue increase in the first quarter, with analysts forecasting a 23% sales growth for the year. This represents an attractive valuation for a semiconductor stock with such growth potential.
Investors expecting AMD to significantly dent Nvidia’s market share may be disappointed. Nonetheless, AMD should continue to experience robust growth in data centers as AI infrastructure investments drive the chip market. While AMD is expected to keep Nvidia in check regarding prices and perform well in the CPU market, it is unlikely to become the next market leader akin to Nvidia.
