AMD's AI Ambitions: Challenging Nvidia's Dominance in the Booming AI Chip Market

Is Advanced Micro Devices (AMD) Stock a Buy Now? | The Motley Fool

Wall Street left AMD in the dust in 2024, but that could soon change in a big way. The stock market can sometimes feel like a popularity contest. Investors have flocked to Nvidia because it's the dominant supplier of the data center chips powering artificial intelligence (AI) models. On the other hand, Wall Street has seemingly left Advanced Micro Devices (AMD 3.93%) in the dust. While Nvidia has soared an impressive 170% over the past 12 months, AMD has declined nearly 20%. It's clear that AMD isn't the AI company Nvidia is. Its $3.5 billion in data center revenue in Q3 was a fraction of Nvidia's $30.8 billion. However, investing isn't always about following the herd. Often, the underdog can win big, too. Is AMD poised to perform better in 2025? Keep reading to discover if the stock is a buy right now. AMD offers its Instinct line of accelerator chips, which are purpose-built for artificial intelligence (AI). Nvidia is currently the market leader in AI chips, but the big technology companies that buy these chips for their data centers don't want to depend on one supplier for such a critical need. Therefore, companies like Microsoft and Meta Platforms work with other chips, including AMD's Instinct line. As mentioned, AMD's data center revenue in Q3 was about 10% of Nvidia's. That's not bad when you're in such a vast market. Research from S&S Insider estimates that the AI chip market will grow from $61.4 billion in 2023 to $632 billion by 2032. AMD CEO Lisa Su has estimated it will reach $500 billion by 2028, a similar trajectory. Nvidia's total revenue over the past four quarters was $113 billion, which shows just how much room there still is for growth in AI chips. AMD doesn't need to lead -- it can compete and still do very well for investors. Now, let's discuss why Nvidia's stock has performed so well, why AMD's hasn't, and why that could change. Each stock's performance over the past year makes sense when you look at the numbers. You can see below that Nvidia has grown revenue much more quickly than AMD. Given Nvidia's superior growth, it's not a shock that it enjoys a far higher price-to-sales ratio (P/S) than AMD. That said, AMD could soon join the party. Data center sales (where AI chips go) make up almost all of Nvidia's revenue, so AI-driven growth carries the whole business. However, AMD is more diversified than Nvidia, as data center revenue represents barely half of total Q3 sales. Investors may not realize that AMD, despite its inferior market position, is seeing plenty of success. The company's data center segment grew 122% year over year in Q3, faster than Nvidia's 112%. If this continues, AMD's total revenue growth will accelerate as AI becomes a more significant part of the business. As you can see above, this has happened over the past few quarters. Things seem poised to pick up speed in 2025. Analysts estimate AMD's revenue will finish 2024 at $25.66 billion and increase to $32.56 billion in 2025. If accurate, that would represent nearly 27% growth. Ironically, AMD stock trades at a P/S ratio of 8.1 today, a far lower valuation than in early 2024, when growth was nowhere close to 27%. It's also roughly just a quarter of Nvidia's valuation. I'm not arguing that AMD deserves a valuation as high as Nvidia's, but AMD has plenty of room for that valuation to expand. When you add things up, it starts getting interesting. AMD's valuation could remain stagnant, and growing 27% would still produce a stellar one-year return. Factor in a higher valuation, and AMD could have a stretch similar to what Nvidia investors have enjoyed over the past few years. That handily makes the stock a buy today.

Is AMD Stock a Buy Now? | The Motley Fool

Semiconductor designer Advanced Micro Devices (AMD 0.10%) has been swooning lately. Despite a robust price jump last Monday, AMD's stock is down more than 40% from its one-year high. With less than a week left in 2024, share prices have plunged 15% this year. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) stock market index gained 25% year to date. Is AMD missing out on the artificial intelligence (AI) market boom, or is the stock a fantastic AI investment at these lower prices? On further review, a third option looks more correct -- AMD is a "hold" in my book. Archrival Nvidia (NVDA -2.09%) is setting the standard for AI accelerator chips and how they are used in actual computing systems, but AMD is a leading challenger to that company's dominant position. In October's third-quarter report, AMD's data center sales rose 122% year over year to $3.5 billion. The Instinct series of AI accelerators and EPYC line of server-grade processors drove this surge, and both products play important roles in training and operating large language models (LLMs). Granted, AMD's data center sales can't hold a candle to Nvidia's $30.8 billion in the same quarter. That's not the end of the world, though. AMD is embracing its underdog role. The company isn't trying to set new AI standards. Instead, it makes sure its products work with the same AI software and programming techniques as Nvidia's chips. Simplifying the switch from one hardware solution to another makes it easier to win over existing Nvidia users to AMD's alternatives. "Pretty much any model written for the standard framework, if you're running on NVIDIA, you could run it on [AMD Instinct] MI300 out of the box, day 1, and it would work," AMD's Forrest Norrod said at a recent industry conference. And this strategy is paying dividends. AMD's data center growth outpaced Nvidia's 112% annual increase in the third quarter. In other words, AMD is gaining some ground on the larger AI chip specialist. AMD is a significant provider of AI hardware. It's not all wine and roses, though. The soaring AI bandwagon may have surged a bit too far and too fast, and investors are taking a more critical look at this boom from a long-term perspective. As a result, many stocks in the AI sphere have stalled or even fallen recently. Nvidia shares are up a measly 0.1% in the last month, and OpenAI partner Microsoft gained just 0.6% in the same period. Leading AI system builders Super Micro Computer and Dell dropped 7.1% and 17.2%, respectively. And maybe it's all for the best. With the exception of Supermicro's scandal-stricken profile, none of these stocks are cheap, even after their recent price corrections. AMD has emerged as a particularly expensive option, even in comparison to notorious market darlings like Microsoft and Nvidia: Data was collected from Finviz on Dec. 28, 2024. AMD's drooping stock chart may be painful for current shareholders, but investors looking to put more of their cash to work in the market should celebrate the lower buy-in prices. In fact, AMD's volatile stock could benefit from an even sharper price correction. Right now, the best approach to AMD's stock might be a risk-mitigation plan, such as buying in thirds or setting up a dollar-cost averaging plan. Either method can help you work around price-dip risks by grabbing more shares when they're cheap and fewer when they're pricy. That's a prudent approach when share prices are high and the direction of short-term moves is unpredictable. At the moment, I wouldn't get into AMD's stock without these robust price controls. Long story short, I wouldn't sell AMD stock today, and I would buy it only with great caution. The third option is to simply hold the stock and not make any active moves. Most AMD investors should probably not touch this stock's buy or sell buttons until it either cools down or connects to a stronger business trend.

Missed Out on SoundHound AI's Run-Up? My Best Artificial Intelligence (AI) Stock to Buy and Hold | The Motley Fool

SoundHound AI has been one of the hottest artificial intelligence (AI) stocks on the market in 2024, clocking stunning gains of 936% as of this writing on the back of several favorable developments such as its outstanding growth, an investment from AI pioneer Nvidia, and positive coverage on Wall Street of late from analysts who believe that this voice AI solutions provider could be a big winner in the long run. The good part is that SoundHound AI has been growing at an incredible pace and seems to be making the most of the huge addressable opportunity on offer in the voice AI solutions market by building a solid customer base. However, the bad part is that the stock is extremely expensive right now following its remarkable surge in 2024. It is now trading at 109 times sales. For comparison, AI bellwether Nvidia has a price-to-sales ratio of 31 even after the outstanding growth that it has been clocking in recent quarters and the dominant position that it enjoys in the AI chip market. So, investors would do well to look for alternatives to SoundHound if they are looking to jump on to the AI bandwagon. Advanced Micro Devices (AMD -2.20%) is one such alternative that investors can consider buying right now to make the most of the proliferation of AI. Here are some of the reasons AMD could be one of the best AI stocks to buy heading into the new year. AMD stock has underperformed the market in the past year, losing 16% of its value while the broader PHLX Semiconductor Sector index has clocked 20% gains over the same period. AMD's weak influence in the AI chip market is one of the key reasons behind its underperformance. After all, the chipmaker expects to sell just $5 billion worth of AI graphics processing units (GPUs) that are deployed in data centers. For comparison, rival Nvidia's revenue from the data center business came in at a record $30.8 billion in the previous quarter, rising 112% from the year-ago period. However, the silver linings in AMD's AI chip business should not be ignored. The company's data center revenue increased 122% year over year in the third quarter of 2024 to $3.5 billion, driven by the growing sales of its AI GPUs and server processors. Another thing worth noting here is that AMD has kept increasing its data center GPU sales forecast throughout 2024. It was initially hoping to sell just $2 billion worth of data center GPUs at the beginning of the year. So, the consistent increase in the company's sales forecast means that it is gradually gaining traction in this market. The good news for AMD investors is that its data center GPU sales could keep growing at a nice clip in 2025 as well, driven by strong demand and an improving supply chain. On its October 2024 earnings conference call, AMD CEO Lisa Su pointed out that the company has "planned for significant growth" in its AI chip supply for 2025. After all, AMD's foundry partner, Taiwan Semiconductor Manufacturing, is reportedly going to double its advanced chip packaging capacity by the end of 2025. Although Nvidia has reportedly secured 60% of TSMC's advanced chip packaging for 2025, it still means that AMD can witness a nice jump in production of its AI chips next year, leading to further growth in its data center revenue. Importantly, AMD doesn't need to beat Nvidia to drive substantial growth in its revenue and earnings. After all, AMD management expects the AI accelerator market to hit $500 billion in revenue in 2028. So, even if Nvidia remains the dominant player and AMD manages to eke out even a 10% share of this market over the next three years, its data center GPU revenue could grow tenfold from 2024 levels. Moreover, there is an additional AI-related catalyst for AMD in the form of the personal computer (PC) market. Global AI PC shipments are expected to jump to 114 million units in 2025 from an estimated 43 million in 2024, according to Gartner, and AMD is well placed to capitalize on this growth. According to Su, "HP and Lenovo are on track to more than triple the number of Ryzen AI Pro platforms they offer in 2024, and we expect to have more than 100 Ryzen AI Pro commercial platforms in the market next year, positioning us well for share gains as businesses refresh the hundreds of millions of Windows 10 PCs that will no longer receive Microsoft technical support starting in 2025." All this explains why analysts are forecasting a robust turnaround in AMD's financial performance next year. Analysts are expecting AMD's revenue to increase 13% in 2024 to $25.6 billion, along with a 26% jump in the bottom line to $3.33 per share. The following chart clearly shows that a significant acceleration is expected in AMD's growth in 2025. The stock is currently trading at 25 times forward earnings, which is a discount to the tech-laden Nasdaq-100 index's earnings multiple of 33 (using the index as a proxy for tech stocks). Assuming AMD trades at even 30 times earnings after a year and achieves $5.10 per share in earnings in 2025, its stock price could jump to $153. That would be a 25% jump from current levels. Of course, more upside cannot be ruled out if AMD manages to deliver stronger bottom-line growth and the market decides to reward it with a higher valuation as a result. That's why investors looking to buy an AI stock that's trading at a reasonable valuation and has the potential to deliver healthy gains in 2025 should consider taking a closer look at AMD instead of expensively valued stocks such as SoundHound.

Where Will Advanced Micro Devices Be in 1 Year? | The Motley Fool

Artificial intelligence (AI) has been the driving force behind the growth of many tech companies lately. With AI infrastructure spending ramping up, Advanced Micro Devices (AMD 0.10%) has benefited from tech giants investing in advanced processors. However, AMD's stock hasn't benefited all that much from the AI boom, and semiconductor rival Nvidia (NVDA -2.09%) has overshadowed much of the company's impressive results. Over the past year, AMD's stock has tumbled 13% compared to the S&P 500's 26% gains (as of this writing). So, where is AMD headed over the next year? Let's take a look. To understand where AMD might be in one year, you need to first look at what's happening with the company right now. In the company's third quarter (ended Sept. 28), AMD's sales rose 18% year over year to $6.8 billion and diluted generally accepted accounting principles (GAAP) earnings per share spiked 161% to $0.47. The main driver of AMD's growth in the quarter came from its data center revenue, which includes sales of its GPU processors for AI, which soared 122% to $3.5 billion. Management said this impressive sales growth puts the company on track for fourth-quarter sales to increase 22% to $7.5 billion. The company is benefiting from large tech companies ramping up spending on AI infrastructure, which rival Nvidia estimates could reach $2 trillion over the next five years. Even AMD's management has had to adjust to all of the AI semiconductor spending. The company now estimates full-year data center GPU revenue will be $5 billion, a huge increase from its initial $2 billion estimate at the beginning of the year. It's difficult to determine why one company vastly underperforms the market while its rivals soar. However, when it comes to AMD, a couple of things could continue to weigh down investor sentiment over the next year. First, investors haven't been thrilled that the company's gaming and embedded segments have seen significant revenue declines -- 69% and 25%, respectively, in the third quarter. While AI is the future, falling sales from these two sales categories aren't sparking confidence in AMD for some investors. Second, and more importantly, AMD is fighting an uphill battle against Nvidia. While AMD sells impressive hardware, Nvidia has an estimated 70% to 95% of the AI semiconductor market. Trying to gain ground against Nvidia will be a heck of a task over the next year. AMD will likely continue to benefit from the shift to AI, but whether or not its share price will gain over the next year is trickier to predict. I'd be comfortable sitting on the sidelines of AMD right now, but buying shares might not be a bad idea if you're looking for cheap AI stock. AMD's forward price-to-earnings ratio is 25.1 right now, compared to Nvida's more expensive forward P/E ratio of 32.6. Just keep in mind that AMD may be a bit volatile as investors try to decipher the company's long-term AI potential with falling sales in other segments and the company's GPU battle with Nvidia.

5 AI Stocks with Growth Potential of Over 50% in 2025

Advanced Micro Devices (AMD) has emerged as a formidable competitor in the AI hardware arena, developing advanced processors and GPUs tailored for AI workloads. With the escalating demand for AI processing power, AMD's innovative solutions are set to capture a significant market share. Analysts project that AMD's strategic investments in AI will drive substantial revenue growth, potentially exceeding 50% in 2025. Microsoft has seamlessly integrated AI across its product suite, including Azure cloud services and Office applications. The company's commitment to AI is evident through substantial investments and strategic partnerships, positioning it as a key player in the AI landscape. With the AI market projected to expand rapidly, Microsoft's diversified AI initiatives are expected to contribute to significant revenue growth in 2025.