Advanced Micro Devices (AMD 2.44%) has been an outstanding performer in the stock market over the past five years, multiplying investors' wealth significantly thanks to robust growth in the data center and personal computer (PC) markets, which has helped boost revenue and earnings at a terrific pace.
For instance, a $100 investment made in AMD stock five years ago is now worth more than $800. But can AMD replicate such impressive growth over the next five years as well? Let's find out.
Sales have jumped nearly fourfold in five years
AMD's market capitalization now stands at just over $138 billion. That's significantly higher than its market cap of $18 billion in 2018.
AMD market cap data by YCharts.
This outstanding growth seems justified considering the massive expansion in its business. AMD finished 2022 with annual revenue of $23.6 billion, 3.6 times its 2018 revenue of $6.5 billion. That big jump can be attributed to AMD's market-share gains in PC processors and the company's growing influence in the server processor space.
AMD reportedly controlled just 0.8% of the server market at the end of 2017, with Intel (INTC -0.38%) dominating the rest. But it has regained its mojo in the past few years and finished 2022 with a 20% share, according to Counterpoint Research. It is worth noting that AMD gained 8 percentage points of server market share last year alone.
Meanwhile, the company has also benefited from secular growth in the microprocessor market, which has soared from $41 billion of revenue in 2012 to $108 billion in 2022. The good news for AMD is that the markets it serves are set to grow further.
More importantly, it won't be surprising to see the company take more market share away from Intel. These two factors could lead to rapid growth in AMD's revenue and earnings.
The chipmaker has a bright future
AMD is scratching the surface in multibillion-dollar markets such as server processors. The company's data center business generated $6 billion in revenue in 2022, but AMD sees a long-term opportunity worth $42 billion in this segment based on its internal estimates. The company has been consistently enhancing its server processors in product development, which has helped it remain ahead of Intel.
AMD's current fourth-generation Epyc server processors are manufactured using a 5-nanometer (nm) process node, helping them deliver a big jump in performance over the previous generation. The chipmaker is expected to go further in 2024 with the launch of its Turin server processors, which are expected to be based on 4nm and 3nm processes.
Meanwhile, Intel's Granite Rapids server processors, which could be launched in 2024, are expected to be manufactured using a 5nm process. AMD's smaller process node would allow it to pack more transistors into a smaller die, thereby improving the computing power of its processors while lowering power consumption. As a result, it won't be surprising to see AMD win more share from Intel in the massive server-processor market.
Wall Street analysts agree, with Bank of America's Vivek Arya estimating that AMD's server market share could head toward 35% in the future. And the company expanded its addressable market with the acquisition of Xilinx last year.
This move has unlocked a $135 billion revenue opportunity for AMD as the chipmaker will now be able to tap the adaptive-computing and embedded-chip markets. Xilinx will enable AMD to tap multiple verticals such as artificial intelligence, automaking, and data centers.
All these catalysts explain why AMD's revenue and earnings are expected to head higher in the next couple of years.
| Year | Estimated revenue (in $billion) | Year-over-year growth | Estimated earnings per share | Year-over-year growth |
|---|---|---|---|---|
| 2023 | $23.7 | $3.04 | ||
| 2024 | $27.7 | 17% | $4.34 | 43% |
| 2025 | $31.4 | 13% | $5.35 | 23% |
Source: YCharts
Management said during the company's 2022 investor day in June last year that it expects long-term annual revenue growth of 20%. Assuming AMD's top line grows at an annual pace of even 15% over the next five years, revenue could jump to $47 billion at the end of the forecast period.
Multiplying the projected revenue with AMD's current price-to-sales ratio of 5.8 -- a discount to its five-year average sales multiple of 7.2 -- would translate into a market capitalization of $273 billion, nearly double its current value.
But don't be surprised to see AMD grow faster thanks to the lucrative markets it is operating in, which is why investors might want to buy this tech stock and hold on to it for the next five years given the potential upside.
