Last year, shares in Advanced Micro Devices (AMD -5.44%) fell 55%, alongside steep declines in the PC market. As a leader in computer components, a year when graphics processing unit shipments fell 42% was damaging to AMD's gaming and client segments.
However, bullish investors have boosted AMD's stock by 34% in 2023, with a successful chip launch and better-than-expected quarterly results rallying Wall Street. The company's data center segment has proven its strength in recent quarters, giving the tech giant a promising outlook.
AMD's stock may be down 25% year over year, but it remains a must-buy in 2023. Here's why.
Home to a booming data center business
AMD's PC-driven segments faltered over the last year, but its data center business generated the most revenue and growth. In fiscal 2022, data center revenue rose 63% to $6 billion. Meanwhile, operating income increased 86% to $1.8 billion. And the business looks likely to expand further in 2023.
In November, AMD launched a new generation of data center chips, its Genoa series. The chips have done well against the company's biggest competitor, Intel, which released its Sapphire Rapids server chip in January after two years of delays. AMD beating Intel to release, and recent benchmarks that show the Genoa chips outperform Intel's offerings, are promising achievements. As a result, AMD looks likely to steal market share from Intel in the high-growth industry.
Moreover, AMD's growing position in data centers allows it to profit from the swiftly developing cloud computing market. According to Grand View Research, the cloud industry -- some $370 billion in size as of 2021 -- will expand at a compound annual rate of 15.7% through 2030.Considering AMD's Genoa chips already have cloud leaders, such as Microsoft's Azure, Alphabet's Google, and Oracle, signed on as clients, the company will likely profit from the market's growth for years.
Moreover, AMD's success in data centers has only boosted anticipation for its more powerful Genoa-X chips launching later this year.
Stellar long-term growth
Despite a challenging 2022, AMD's stock has soared 556% in the last five years and over 3,000% in the last decade. Compared to some other tech giants, AMD's stock has skyrocketed since 2018, as seen in the table below.
Data by YCharts
AMD's revenue has risen 264% over the last five years to $23.6 billion in 2022, while operating income has increased 435% to $1.2 billion. The impressive growth is primarily owed to the immense success of its Ryzen processors, which first launched in 2017 and made the company a true force in the PC market.
While declines in chip sales have stunted AMD's desktop CPU business, the company has wisely diversified since 2017. In addition to data centers, the semiconductor company purchased Xilinx in 2020 for $35 billion. Xilinx develops processors for specialized tasks such as video compression or encryption and has sent AMD's embedded segment soaring. In its latest quarter, Xilinx was the main contributor to the segment's $1.4 billion in revenue.
Despite steep declines in AMD's client segment over the last year, its pivot to data center and embedded operations has managed to offset losses from the PC market. Additionally, the tech company's long-term growth is partly owed to its strong leadership in CEO Lisa Su, who has led AMD from the brink of a possible bankruptcy filing to stealing market share from Intel for multiple consecutive quarters.
AMD may have suffered considerably in 2022. However, its ability to shift its focus to more profitable aspects of its business amid economic burdens makes its stock a screaming buy in 2023 and only more attractive now that it's down 25% over the past year.
