AMD's AI Strategy Drives Growth and Market Share Gains in Data Center and PC Segments

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

Advanced Micro Devices (AMD -1.21%) is an important player in the global semiconductor industry as its chips power multiple applications such as personal computers (PCs), gaming consoles, data center servers, and communications and aerospace equipment, among others. But its performance on the stock market has left a lot to be desired in the past three years. AMD stock has been weighed down by factors such as sharp declines in PC shipments in 2022 and 2023, the poor performance of its embedded business on account of tepid demand from telecom customers, and soft demand from the gaming segment. Additionally, the company's inability to corner a substantial chunk of the booming artificial intelligence (AI) chip market, where Nvidia has established itself as the clear leader, has also dented investor confidence. All this explains why AMD stock has clocked just 17% gains in the past three years. That's way lower than the 68% jump in the Nasdaq Composite index over the same period. However, AMD's financial performance has been picking up pace in recent quarters thanks to a solid jump in sales of its PC and data center chips. But will the company be able to sustain this momentum over the next three years and deliver market-beating returns? AMD has witnessed a nice jump in its revenue and earnings in the past couple of years. This is evident from the chart below. This impressive turnaround can be attributed to the gradual recovery in the PC market, as well as AMD's entry into the data center graphics processing unit (GPU) space. Sales of PCs were up by 3.9% last year, and they are expected to head higher on the back of the growth in AI-enabled PCs and the end of support for Windows 10 PCs in October. Market research firm TechNavio is expecting the PC market to clock a compound annual growth rate of almost 8% through 2028. This suggests that the next three years for the PC market are likely to be much better than the last three. This is great news for AMD investors as the company's client central processing unit (CPU) business has been in fine form in recent quarters. For example, AMD's client segment revenue shot up an impressive 68% year over year in Q1 to $2.3 billion, accounting for 31% of its top line. This was extremely impressive when you consider that global PC shipments rose 6.7% year over year in Q1. AMD has been consistently gaining share in the client CPU market in recent quarters, and this explains why its growth significantly exceeded the broader market. According to Mercury Research, AMD's revenue share of the client CPU market shot up by more than 10 percentage points in the first quarter of 2025 to 26.5%. This was better than the increase of 3.5 percentage points in its unit share to 24.1%, suggesting that AMD is enjoying stronger pricing power for its processors. AMD's market share numbers also tell us that the company still has a lot of room for growth. Management remarked on the latest earnings conference call that it is confident it can grow "client processor revenue well ahead of the market in 2025," a trend that's likely to continue over the next three years considering the problems faced by Intel, AMD's rival in this market. So, a combination of higher market share along with the PC market's recovery over the next three years could turn out to be a big growth driver for AMD. Meanwhile, AI data centers are boosting demand for AMD's server CPUs and GPUs. This explains why the company's data center revenue shot up an impressive 57% year over year in the first quarter of 2025 to $3.7 billion. Just like the client CPU market, AMD has been eating into Intel's share of data center CPUs. Its revenue share of the server CPU market increased by more than 6 percentage points in Q1 to 39.4%. There is a good chance that AMD will be able to corner a bigger share of the server CPU market in the future as major cloud computing providers and enterprise customers have been turning to this platform to power their data centers. Moreover, AMD believes that the launch of its next-generation server CPU platform, which will start shipping in the second half of the year, should continue to power the growth of this segment. This won't be surprising as the company estimates that the fifth-generation processors based on the Turin architecture could deliver 17% better performance while tackling enterprise and cloud workloads as compared to the previous generation processors. Even better, they are expected to deliver a 37% improvement in performance during AI and high-performance computing tasks. On the other hand, AMD's customer base for its data center GPUs is also expanding. The company is not only adding new customers for its Instinct series of data center graphics cards, but is also bringing new ones on board. The company's momentum in the data center GPU market could get better once it launches its upgraded MI350 accelerators this year. AMD is promising big performance gains by "increasing memory capacity and bandwidth 1.5x, adding support for new data types, and improving network efficiency to deliver 35x higher throughput and performance compared to MI300x." Not surprisingly, AMD says that the demand for its upcoming AI GPUs is solid, with the likes of Oracle already set to deploy clusters powered by its new chips. Again, investors would do well to note that AMD doesn't need to become the biggest player in the AI GPU market. It could witness a significant jump in its data center GPU revenue over the next three years even if it plays second fiddle to Nvidia. AMD stock is currently trading at 28 times forward earnings, which is a discount to the Nasdaq-100 index's earnings multiple of 31.5. What's more, the stock has a price/earnings-to-growth ratio (PEG ratio) of 0.58 based on its projected earnings growth over the next five years, according to Yahoo! Finance. A PEG ratio of less than 1 means that a stock is undervalued when you take into account the growth it could deliver over the next five years. Not surprisingly, consensus estimates are projecting AMD's earnings to increase to $6.88 per share in 2027, which would be more than double its 2024 earnings of $3.31 per share. Assuming AMD trades at 27 times earnings after three years (in line with the Nasdaq-100's forward earnings multiple) and does hit the consensus earnings estimate, its stock price could jump to $188. That would be a 66% jump from current levels, suggesting that this tech stock could deliver a much-improved performance over the next three years.

Should You Buy Advanced Micro Devices (AMD) Stock After Its 47% Drop? | The Motley Fool

Advanced Micro Devices (AMD -2.35%) supplies some of the best chips in the world for computers, cars, game consoles, and data centers. The company's data center business is a key focus for investors right now, as demand soars for its graphics processing units (GPUs), which are designed for artificial intelligence (AI) development. AMD, as its known, is still chasing Nvidia in the AI data center market, but the company's latest GPUs could help close the gap. Plus, AMD is already a leading supplier of AI chips for personal computers, which could be the next big growth segment. The stock is down 47% from its record high last year, primarily due to sluggish results from its gaming business. But AI could be the biggest opportunity in the company's history, so should investors swoop in and buy the dip? AMD's MI300X data center GPU is the company's top AI chip, and it won over many of Nvidia's top customers, including Microsoft, Meta Platforms, and Oracle. But the company is now gearing up to start shipping its MI350 series, which is based on a new architecture called CDNA (Compute DNA) 4. CDNA 4 GPUs like the upcoming MI355X can deliver up to 35 times more performance than the MI300X, so they are a legitimate competitive threat to Nvidia's Blackwell chips, which recently started shipping at scale. MI355X production will ramp up into the middle of this year, and Oracle has already ordered a whopping 30,000 of them in a multi-billion-dollar deal. But AMD isn't standing still. It's already working on its new MI400 series which will launch in 2026. These chips will likely deliver a similar level of performance to Nvidia's recently announced Blackwell Ultra GPUs. Simply put, AMD is closing the performance gap with Nvidia with every new generation of its GPUs. Longer term, AMD is preparing for AI workloads to shift from data centers to personal computers (PCs), which means people will be able to use powerful AI software without an internet connection, creating a faster and more convenient experience. The company launched a series of accelerated processing units (APUs) under its Ryzen AI banner, which feature a GPU, a central processing unit (CPU), and a neural processing unit (NPU) packaged into one chip. Millions of computers have already shipped with AMD's Ryzen AI chips since 2023, from top manufacturers like Microsoft, HP, and Dell. However, the company just launched its most powerful variant so far, Ryzen AI Max, which set the benchmark for AI processing and battery life. As more AI workloads shift onto PCs and devices, this part of AMD's business could become even more important than the data center. AMD generated $7.4 billion in total revenue during the first quarter of 2025. It represented a 36% increase from the year-ago period, and it was comfortably above Wall Street's forecast of $7.1 billion. But the real stories are beneath the surface of the headline number. The chipmaker generated $3.7 billion in data center revenue during Q1, which was up 57% year over year thanks partly to strong AI GPU sales. Plus, the company's client segment -- which is where it accounts for Ryzen AI PC chip sales -- saw revenue soar by 68% to $2.3 billion. That means the two segments of AMD's business that rely the most on AI chip sales now account for over 81% of the company's total revenue, which bodes well for its future growth prospects. But here's the bad news: AMD's other two segments continue to struggle. Its gaming business generated $647 million in revenue, which was down 30% year over year, but it did grow sequentially (compared to the fourth quarter of 2024) thanks to the launch of the new Radeon 9070 GPU. Demand is outstripping supply for the new chip, but AMD is working to replenish inventory, so there could be further sequential growth from the gaming segment during the current second quarter of 2025. AMD's embedded business delivered $823 million in sales, which represented a decline of 3% from a year ago. But the company expects improving demand from key markets like aerospace, which could fuel a return to growth in the second half of 2025. AMD has generated $3.66 in non-GAAP (generally accepted accounting principles) earnings per share (EPS) over the last four quarters, placing its stock at a price-to-earnings (P/E) ratio of 29.5. That's a 28% discount to Nvidia stock, which trades at a P/E ratio of 41.1. So AMD looks like a good value compared to its biggest competitor. Moreover, Wall Street's consensus estimate (provided by Yahoo! Finance) suggests that AMD's EPS could soar to $5.74 in 2026, which places its stock at a forward P/E ratio of 18.8. That means the stock would have to soar by 57% by the end of next year just to maintain its current P/E ratio of 29.5, and by a whopping 118% if it were to match Nvidia's current P/E of 41.1. Microsoft, Meta Platforms, Amazon, and Alphabet plan to spend around $328 billion (combined) this year on AI data center infrastructure and chips, based on their latest forecasts. That doesn't include spending from other AI giants like Oracle, OpenAI, or Tesla. But this is just the beginning. Nvidia CEO Jensen Huang thinks annual AI data center spending will continue to grow, eventually hitting $1 trillion per year by 2028. AMD could find itself with a growing piece of that enormous pie as its MI350 shipments ramp up later this year, and then again when its MI400 chips hit the market. Therefore, the 47% drop in its stock has created a great opportunity for investors to buy into this exciting growth story at an attractive valuation.

1 Semiconductor Stock That Could Be a Surprise AI Winner | The Motley Fool

This stock is poised for significant growth in the coming years. Advanced Micro Devices (AMD -2.35%) is gradually evolving from mostly a traditional chip company to a prominent artificial intelligence (AI) infrastructure player. While Wall Street has been mostly focusing on Nvidia, AMD has quietly established itself as a strong player in the AI data center business. The company provides high-performance computing hardware and software solutions to clients for processing cloud and AI workloads. In the first quarter of 2025, data center revenue grew 57% year over year to $3.67 billion, making up almost half of AMD's total revenue. Data center AI business revenue also increased by a double-digit percentage year over year, driven by increased shipments of the MI325X accelerators for new cloud and enterprise workloads. With AI inferencing costs escalating rapidly, AMD is in a better position to capture a bigger share of the AI market. Its Instinct GPUs are known to offer superior price performance than competitors. Here are some more reasons why the company may prove to be a surprise AI winner in 2025. AMD's data center business is experiencing robust momentum, driven by solid demand for its EPYC server processors and Instinct AI accelerators. AMD accounted for 25.1% share of the server CPU market, up 2 percentage points year over year, as EPYC server processors continue to be in high demand from both cloud players and enterprise customers. All major cloud players are engaging with the company in the development of fifth-generation EPYC CPUs, codenamed "Turin." EPYC processors are also in high demand from enterprise customers across a range of industries and functions. The company expects enterprise adoption of EPYC processors to further accelerate, as more than 150 server platforms using these chips will become broadly available in the coming quarters. The company's data center AI business is also gaining traction. Multiple Tier 1 cloud and enterprise customers have opted for AMD's Instinct AI accelerators in the first quarter. These clients include one of the largest frontier model developers, which has deployed Instinct GPUs to cater to a significant portion of its daily AI inferencing workloads. AMD has also started sampling the next-generation MI350 series GPUs with several customers and is on track for production by mid-2025. With MI350 offering higher performance, memory capacity, bandwidth, support for new data types, and network efficiency as compared to the MI300 series, AMD expects strong deployment for these chips in the second half of 2025. Furthermore, the company is gearing up for the launch of MI400 series GPUs in 2026. AMD is also focusing on strengthening its software ecosystem, mainly its ROCm software stack for programming the company's GPUs. Instead of releasing quarterly ROCm updates, the company is now delivering them on a biweekly basis. The company has also increased access to its Instinct compute infrastructure for open-source developers to build, test, and deploy updates to the ROCm stack on a nightly basis. Subsequently, 2 million models on the open-source Hugging Face platform are running directly on AMD hardware without needing any special customization. The company is also ensuring that newly released AI models can run without hiccups on Instinct accelerators immediately after launch. Finally, the recent acquisition of ZT Systems is enabling AMD to sell fully integrated AI systems, instead of just hardware components. All these AI initiatives can dramatically expand AMD's data center business in the coming years. AMD's client segment also reported a strong 68% year-over-year revenue jump to $2.3 billion in the first quarter. The company experienced record client CPU average selling prices (ASPs), driven by increased demand for its high-end desktop and Ryzen processors in gaming and commercial segments. While AMD's processors are increasingly adopted in gaming desktops, the company is also seeing rising demand in the mobile computing market. Furthermore, sales of the company's latest-generation AI-capable processors also grew more than 50% quarter over quarter in the first quarter. AMD is also making its presence felt in the commercial PC space, with the company closing deals with large enterprises across several industries. Despite the solid tailwinds, AMD's shares are currently trading at 21.7 times forward earnings, significantly lower than Nvidia's forward P/E multiple of 25.4. While investors should not ignore the short-term revenue headwind arising from the export control restrictions for Instinct MI308 shipments to China, the fundamentals of the company are still strong. Hence, with a diversified product portfolio spanning various segments such as data center, gaming, and client; a robust balance sheet with $7.3 billion in cash; and a reasonable valuation position, AMD appears an attractive pick now.

AMD's AI Data Center Strategy Is Working; And It's Still Trading Like A Legacy Chip Stock

Even after recent gains, AMD still trades at a steep discount to Nvidia, hovering in the mid-teens on a price-to-sales basis, compared to Nvidia's 30x multiple. After its 1Q25 earnings, it's clear AMD (NASDAQ:AMD) isn't just building fast chips anymore, it's morphing into a full-stack AI compute platform company. The pieces are clicking into place: a credible multi-year roadmap, solid execution across silicon and systems, and growing Ex-trading desk at tradfi bankHead of Investment Research at KRIMaster in Finance