AMD's AI Chip Strategy: Challenges and Opportunities in the Competitive Semiconductor Market

Where Will AMD Stock Be in 3 Years? | The Motley Fool

Stocks have been in a bull market since October 2022. Coincidentally, about a month later in November 2022, the world was introduced to ChatGPT, sparking a generational movement among investors who were chasing anything and everything related to artificial intelligence (AI). Among opportunities in the AI realm, perhaps none have witnessed more gains than semiconductor stocks. Since October 2022, the VanEck Semiconductor ETF has returned 194% -- absolutely dominating the Nasdaq Composite's return of 88% and the S&P 500's gain of 68%. Chief among the chip stocks is Nvidia, which has soared by 1,100% since the beginning of the current bull market. By contrast, Nvidia's top rival, Advanced Micro Devices (AMD 1.20%), has returned 110% over the course of the bull market. This isn't anything to turn your back on, but it's not even in the same league as Nvidia. With that said, I think shares of AMD could be on the brink of their own Nvidia-esque run. Let's dig into why Nvidia has been all the rage among chip stocks over the last two years and analyze why AMD could be headed much higher over the course of the next few years. Throughout the AI revolution, Nvidia's bellwether has been its computing and networking business. Specifically, the company's Hopper and Ampere graphics processing units (GPUs) have seen historical demand. GPUs are the engine that power generative AI applications. And for much of the last two years, Nvidia was the only major player in town. As it stands today, Nvidia owns 90% of the GPU market. Although a lead like that might discourage you from even considering an alternative to investing in Nvidia, I would encourage you to keep an open mind. In December 2023, AMD released the MI300X data center GPU. While this was nearly a year after Nvidia had already been dominating the GPU market, AMD has witnessed some considerable success that I think is going overlooked. First off, hyperscalers including Meta Platforms, Oracle, and Microsoft are all augmenting their Nvidia architecture with AMD's MI300 accelerators. Acquiring customers of this caliber is impressive, but AMD's financial trends are what really have me excited. Since the release of the MI300 architecture, AMD has seen its data center GPU business grow from effectively nothing into a multibillion-dollar operation, and it has continued to accelerate quarter after quarter. Meanwhile, Nvidia's data center operation is actually beginning to show signs of slowing down. This pace of growth has provided AMD with an estimated 10% share of the GPU market -- effectively making it an outright duel between AMD and Nvidia. When the current bull market began in October 2022, Nvidia's market capitalization was just $280 billion. Today, the company is valued at over $3.3 trillion, more than tenfold what it was worth just two years ago. Interestingly, AMD's current market cap of $200 billion is not that far away from where Nvidia was valued before it went parabolic. In my eyes, investors are really discounting AMD's potential over the next few years as the company continues scaling up its data center business. With successor GPUs already scheduled for release between this year and 2026, AMD is in a good position to continue disrupting Nvidia. As such, investors looking for more growth could eventually sour on Nvidia and turn to alternatives such as AMD. I still see Nvidia as a great opportunity, but I think the days of 1,000%-plus gains are in the rearview mirror. By contrast, I think AMD is in the early stages of its own epic run. I see AMD as a bargain opportunity right now, and I think it will be significantly higher three years from now as its chapter in the AI storyline continues to unfold.

Prediction: AMD Stock Will Grow Its AI Chip Revenue, but Not as Quickly as Investors Hope

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jose Najarro has positions in Advanced Micro Devices, Alphabet, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. Jose Najarro is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through their link they will earn some extra money that supports their channel. Their opinions remain their own and are unaffected by The Motley Fool.

AMD's AI Chip Sales Might Disappoint in 2025 | The Motley Fool

Advanced Micro Devices (AMD 2.55%) has emerged as the No. 2 player in the artificial intelligence (AI) accelerator market, although it remains far behind Nvidia. While Nvidia is now generating $30 billion per quarter in its data center segment, AMD has said it expects to produce around $5 billion from AI accelerator sales in all of 2024. With demand for AI accelerators still booming and AMD's market share small, there should be plenty of room for the company to grow its AI business quickly. However, 2025 could be a less-than-stellar year for AMD if a new forecast from a Wall Street analyst is to be believed. An analyst at Wolfe Research downgraded AMD stock on Thursday to the equivalent of "hold" and removed his price target entirely due to concerns about data center graphics processing unit (GPU) growth. The analyst pointed to build plans from original design manufacturers to justify the increased pessimism. The Wolfe analyst pegs AMD's data center GPU revenue between $1.5 billion and $2 billion for the fourth quarter of 2024. For 2025, the forecast was lowered to just $7 billion, far below the $10 billion analysts are generally expecting. That annual forecast basically predicts that AMD's data center GPU revenue isn't going to grow much quarter to quarter this year. Of course, take any analyst opinion with a grain of salt. We're less than three weeks into the new year, and the AI industry moves extremely quickly. AMD has some compelling AI accelerators on the market, and they're clearly winning over customers. Oracle is using AMD's MI300X GPUs for its cloud data centers, and Vultr, a smaller cloud provider, has chosen the same AMD GPU to build its AI offerings around. One headwind AMD and all other non-Nvidia competitors face is the maturity of Nvidia's software ecosystem. Nvidia GPUs support a proprietary software layer called CUDA, which has been around for a long time and is widely used across industry and academia for accelerated computing tasks. Even with capable hardware from AMD, the path of least resistance for those building out AI clusters is still Nvidia. Software is a big reason Intel's efforts at breaking into the AI accelerator market have largely failed so far. Intel has an added complication in that its Gaudi AI chips are not traditional GPUs, so the architecture also acts as a hurdle. AMD has fared much better than Intel, but it's still far behind Nvidia. The software situation should improve over time, and new chips from AMD could help boost sales this year if they're well received by the market. The MI325X is expected to be widely available from system manufacturers in the first quarter, although that chip uses the same architecture as the previous MI300X. The next-generation Instinct MI350 family is expected to launch sometime in 2025, likely later in the year, and AMD is promising big performance improvements. Based on a new architecture, AMD claims that the MI350 family provides up to 35 times the AI inference performance compared to the MI300 family. The MI400 family will then come in 2026, built on another brand-new architecture. Even with a quick pace of product launches, AMD is up against an equally quick Nvidia and will continue to struggle against its software disadvantage. While AMD's AI chip sales this year are yet to be determined, any shortfall relative to expectations could send the stock tumbling.

Is AMD Stock Due for a Bounce Back Year in 2025? | The Motley Fool

Advanced Micro Devices (AMD 3.33%), also known as AMD, has been a surprisingly underperforming tech stock over the past year. In 2024, it declined by 18% even despite its promising growth opportunities as a top artificial intelligence (AI) chip maker. Over the past five years, the stock has achieved gains of around 140%, and it has typically been a market-beating investment. Is it due for a big bounce-back year in 2025, or is there more trouble ahead for AMD? The name of the game in AI is growth. And that's been an area where AMD simply hasn't been delivering on lately. While the company is involved with developing AI chips, it has been lagging behind its key rival, Nvidia. While its chips may be more attractively priced, the company still has to show that demand for them will be strong. It's little secret why Nvidia has been a red-hot investment while AMD has struggled. A look at their respective growth rates tells you the key reason behind their diverging stock valuations. While AMD's growth rate has been rising recently, it pales in comparison to Nvidia's stellar performance. For AMD to rally this year, it needs to prove that its AI chips are competitive with respect to Nvidia. And for that to happen, its growth rate needs to improve -- drastically. You might assume that because of AMD's falling value and Nvidia's continuing to rise higher, the former might be a better value buy than the latter. However, while AMD stock may have been underperforming, that hasn't resulted in it being a cheaper option for investors today. Remarkably, due to Nvidia's phenomenal growth and impressive margins, it's still the better value buy when comparing the respective earnings multiples of these two tech companies. While AMD's price-to-earnings ratio has been improving in recent quarters, it still has a long way to go in getting to Nvidia's much lower multiple. The bottom line is this is another area where AMD will need to show improvement in order to win over growth investors. Both AMD and Nvidia are promising AI stocks to own over the long term. AMD, however, still has to prove to investors that its AI chips offer formidable competition to Nvidia. If that happens, it should accelerate the company's growth rate and improve its earnings, which may shrink the gap on both of the charts above. AMD is a bit more of a contrarian pick these days, but for investors who are willing to take a chance on the growing business, buying it now can lead to some significant gains ahead -- but that's only if the company delivers on stronger earnings numbers in upcoming quarters. Nvidia is a solid stock and is the safer buy, but since it's already among the most highly valued stocks in the world, it may be running out of room to rise higher. If you're a risk-averse investor, the best idea may be to simply hold off on buying AMD for the time being and see how well it performs as the year goes on. If its AI chips do lead to an accelerating growth rate, that could be a sign that the stock will bounce back this year and that it may soar even higher in the long run. If that doesn't happen and its earnings prove to be underwhelming, however, that could spell trouble and may lead to further declines for the stock.

AMD stock crashes 11%: Is Nvidia to blame?

Advanced Micro Devices (AMD) stock (NASDAQ:AMD) has experienced an 11% decline over the past week and is down approximately 25% since the start of 2024. In comparison, the S&P 500 has increased by about 22% during the same period, while rival Nvidia (NASDAQ:NVDA) has surged over 160%. The recent sell-off is attributed to several factors, including a downgrade from "buy" to "neutral" by Goldman Sachs analysts and lowered estimates from KeyBanc Capital Markets and HSBC. Concerns over increasing competition in the GPU market, particularly from Nvidia's advanced chips and other new entrants in the AI sector, have added to the negative sentiment. Although AMD has been gaining market share from Intel in the CPU space for PCs and servers, there are worries that the overall market may be slowing down. According to IDC data, PC sales rose by just 1.8% year-over-year in Q4 2024 and by 1% throughout 2024. AMD is introducing new MI350 chips aimed at enhancing its competitive edge. The company has shifted focus from gaming and design GPUs to chips for large language model training and inference in generative AI. Demand for AMD's MI325 graphics processing units has been described as soft. However, AMD is concentrating on areas with potential for market share capture. The MI350 GPU series, set to launch in late 2025, is projected to deliver 35 times better inference performance than its predecessor, the CDNA 3. Key market moves to watch Thursday after S&P 500's post-election surge The AI market is expected to gradually transition from model training to inferencing, which requires less computational intensity. This shift could favor AMD's AI processors. MLCommons, a testing organization, has noted that AMD's MI300X is competitive with Nvidia's H100 GPU in AI inference benchmarks, leading to significant orders from hyperscalers. IBM is set to feature AMD's MI300X in its cloud services during the first half of 2025, while Oracle has opted for AMD's accelerated computing chips for its new AI supercluster due to strong performance at competitive pricing. AMD holds a unique position in the tech industry by leveraging its expertise in both CPUs and GPUs, allowing it to integrate capabilities for efficient processing and accelerated computing tasks, which may provide an advantage in the evolving computer hardware landscape. The stock's performance over the last four years has been volatile, with annual returns of 57% in 2021, -55% in 2022, 128% in 2023, and -18% in 2024. The Trefis High Quality (HQ) Portfolio has delivered steadier returns, outperforming the S&P 500, highlighting a difference in volatility and returns. Given concerns about the macroeconomic environment and previous struggles in 2022 and 2024, there is uncertainty regarding AMD's ability to outperform the S&P over the next 12 months. Despite challenges, analysts maintain a positive outlook for AMD, with a price estimate of around $160 per share, approximately 35% higher than the current market price. The stock is trading at about 23 times the consensus 2025 earnings, considered reasonable relative to AMD's projected 26% revenue growth for that year. In 2024, AMD shares fell by 18% despite growth opportunities as a prospective AI chip maker, struggling to meet investor expectations. AMD's growth has lagged behind Nvidia's. For AMD to recover, its AI chips need to demonstrate competitiveness against Nvidia's offerings, necessitating a significant improvement in growth rates. AMD's price-to-earnings ratio is improving but still trails Nvidia's much lower multiples. Both companies are considered promising investments, but AMD must convince investors that its AI solutions can compete effectively with Nvidia's established leadership in the market. AMD has significant potential in mature markets, but its future performance may depend on the success of its AI processors. AMD's AI-market share remains considerably lower than Nvidia's, with Nvidia holding a 90% share compared to AMD's 10%. AMD reported its Q3 results in October 2024, meeting earnings expectations but falling short in terms of revenue outlook for Q4, estimating $7.5 billion against a $7.55 billion analyst consensus. The company may face challenges in meeting the increasing demand for AI processors, with CEO Lisa Su indicating tight chip supplies in 2025. Analysts have expressed concerns that AMD may struggle to meet Wall Street's estimates for 2025, which range between $8 billion and $9 billion. AMD is scheduled to disclose its Q4 and full-year 2024 financial results on February 4, following the market's closing bell. Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.