Advanced Micro Devices (AMD 2.37%) was once considered a struggling underdog in the semiconductor market. But over the past eight years, AMD became a formidable chipmaker again under Lisa Su, who succeeded Rory Read as the company's CEO in Oct. 2014.
AMD stock has rallied a whopping 3,400% since Su's first day on the job. Its market cap briefly surpassed Intel's (INTC -9.20%) for the first time this February, and it's currently worth $187 billion -- putting it within striking distance of Intel's market cap of $197 billion.
Image source: AMD.
Su brought AMD back from the brink of bankruptcy by developing more custom chipsets for gaming consoles, rebooting its CPU business to counter Intel, and ensuring its GPU business continued to challenge Nvidia with more cost-efficient chips.
But can AMD maintain that momentum over the next eight years and increase its market value to $1 trillion by 2030? Let's review its roadmap, its long-term challenges, and its valuation to find out.
What's next for AMD?
AMD's roadmap will be determined by its ability to design smaller chips. Unlike Intel, which manufactures its own chips, AMD outsources most of its production to Taiwan Semiconductor Manufacturing -- or TSMC -- the world's top foundry. TSMC currently remains far ahead of Intel in the "process race" to create smaller, denser, and more advanced chips.
AMD plans to follow up its current-gen 7nm CPUs and GPUs with 6nm and 5nm chips this year. In 2023, it will launch its first 4nm and 3nm chips. Management believes its Ryzen CPUs will continue to gain ground against Intel in the PC market, while EPYC CPUs will become a compelling alternative to Intel's industry-standard Xeons in the booming data center market.
If AMD sticks to that ambitious schedule, it should remain ahead of Intel -- which has doubled down on its first-party foundries to challenge TSMC -- in the process race with more power-efficient chips. Intel replaced its traditional nanometer-based roadmap with its own proprietary system last year, but it only expects to reach the equivalent of TSMC's 3nm node in 2024.
Staying ahead of Intel and keeping pace with Nvidia
AMD controlled 34% of the CPU market in the first quarter of 2022, according to PassMark Software, while Intel held the remaining 66%. But if AMD consistently launches smaller and more power-efficient chips than Intel over the next several years, we could see its market share continue to rise.
As for GPUs, AMD and Nvidia both rely on TSMC and Samsung's shrinking nodes to manufacture smaller and denser chips. AMD controlled 19% of the discrete GPU market in the fourth quarter of 2021, according to JPR, while Nvidia held the remaining 81%. AMD clearly remains the underdog here, but sticking with its traditional strategy of selling cheaper GPUs with comparable performance should help the company defend its discount niche against Nvidia.
AMD's custom APU business should also benefit from stable sales of Sony's PS5 and Microsoft's Xbox Series consoles, which were initially launched in late 2020. Both consoles are likely to be discontinued before 2030, but Sony and Microsoft could end up sticking with AMD's APUs for their next-generation gaming consoles.
How fast will AMD grow over the next eight years?
Analysts expect AMD's revenue to rise 55% in 2022, 14% in 2023, and 10% in 2024, reaching $32 billion. Its near-term growth could decelerate as the PC market faces slower sales and longer upgrade cycles in a post-pandemic world.
But back in 2020, management set a target to grow revenue at a compound annual rate of 20% "over the long term." That outlook might seem a bit optimistic, given Wall Street's near-term estimates, but if AMD's top-line growth does even out at that rate between 2020 and 2030, the company could generate about $60 billion annually by the end of the decade.
In that same period, AMD would need to expand its price-to-sales ratio from 8.6 as of this writing to nearly 17 times sales -- a level the company has never reached -- to be valued at $1 trillion.
Look beyond its market capitalization
AMD probably won't become a trillion-dollar company by 2030, but it could still easily double (or more) from its current levels if it keeps chipping away at Intel's market share in CPUs while aggressively defending its GPU business against Nvidia.
But even without replicating the jaw-dropping gains the stock has delivered since 2014, AMD will remain a rock-solid investment so long as Lisa Su is in charge of this resilient chipmaker's roadmap.
