Ten years ago, Advanced Micro Devices' (AMD +3.50%) stock was trading at just $3 a share. At the time, the chipmaker was struggling to keep pace with Intel (INTC +1.05%) in the x86 CPU market and Nvidia (NVDA +2.57%) in the discrete GPU arena.
But under Lisa Su, who took the helm as AMD's CEO in October 2014, the chipmaker staged a historic comeback as it developed more powerful chips, expanded its lineup of custom and embedded chips, and capitalized on Intel's big blunders.
Today, AMD's stock trades at $170. A $20,000 investment at $3 a share would have grown to $1.13 million today. Let's see why AMD generated those millionaire-making gains -- and why it could mint even millionaires in the future.
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How did Lisa Su save AMD?
AMD gained a lot of ground against Intel in the x86 CPU market until 2006. However, according to PassMark Software, AMD's global market share plummeted from a peak of 48.4% in the first quarter of 2006 to just 17.8% in the fourth quarter of 2016. From 2006 to 2016, AMD's annual revenue fell from $5.65 billion to $4.32 billion.
That decline was caused by three main challenges. First, AMD acquired ATI for $5.4 billion in 2006 to expand into the discrete GPU market. That massive acquisition pulled valuable resources away from its CPU business and pitted it head-to-head against Nvidia's market-dominating GPU business. Second, Intel launched its first 45-nanometer (nm) chips in 2007, a full year before AMD. That head start, along with its aggressive marketing blitzes, pulled PC makers away from AMD.
Third, AMD bungled its transition to 32nm chips in 2011. Its Bulldozer CPUs disappointed PC makers with their poor single-thread performance and drove even more customers to Intel. As AMD ceded the CPU market to Intel, it also struggled to gain much ground against Nvidia in the discrete GPU market.
NASDAQ: AMD
Key Data Points
Lisa Su revived AMD's ailing business with three core strategies. First, AMD expanded its enterprise, embedded, and semi-custom (EESC) chipmaking business by selling custom APUs -- which merge together a CPU and GPU on a single board -- for Sony's PlayStations and Microsoft's Xbox consoles.
Second, AMD reset its CPU business with a fresh generation of Ryzen CPUs for PCs and Epyc CPUs for servers aimed at rectifying Bulldozer's biggest shortcomings. Lastly, AMD shifted its production from its former foundry unit GlobalFoundries to Taiwan Semiconductor Manufacturing, the world's most advanced contract chipmaker.
As AMD developed more powerful chips and shifted to TSMC, Intel's internal foundries fell behind TSMC in the "process race" to manufacture smaller, denser, and more powerful chips. AMD capitalized on Intel's delays, shortages, and jarring CEO changes -- and its share of the x86 CPU market grew to 35% by the fourth quarter of 2024. Intel's share shrank to 61.6%. From 2016 to 2023, AMD's revenue soared from $4.32 billion to $22.68 billion.
Why could AMD mint even more millionaires?
Several tailwinds should drive AMD's revenue even higher. Intel's deepening crisis, which is being exacerbated by disappointing yields for its latest 18A chips and an uncertain future for its capital-intensive foundries, should convince even more PC makers to adopt AMD's CPUs. AMD won't struggle with any major production bottlenecks as long as it continues to outsource its production to TSMC's market-leading foundries.
AMD remains far behind Nvidia in the gaming GPU market, but it's ramping up its production of its cheaper Instinct data center GPUs for accelerating artificial intelligence (AI) tasks. As the market's demand for Nvidia's data center GPUs continues to outstrip its available supply and keep its prices elevated, more companies could adopt AMD's GPUs instead. Tech titans like Microsoft, Meta Platforms, Oracle, Dell Technologies, and Hewlett Packard Enterprise have already been testing out and running Instinct GPUs.
AMD's 2022 acquisition of Xilinx, which produces field-programmable gate array (FPGA) circuits for data centers and other industries, should further complement its growth in the AI market. Intel's rumored interest in selling Altera -- Xilinx's top FPGA competitor which it acquired in 2015 -- could also leave AMD as the only one-stop shop for data center CPUs, GPUs, and FPGA circuits for the booming AI market.
From 2023 to 2026, analysts expect AMD's revenue to grow at a compound annual growth rate (CAGR) of 20% as its EPS rises at a CAGR of 101%. AMD's stock isn't cheap at 50 times next year's earnings, but its rapid growth could justify that premium valuation. If it matches those expectations and continues to grow its earnings at a more modest CAGR of 25% over the following nine years, it could generate an EPS of $32 in 2035. If it's still trading at 50 times forward earnings by then, its stock price could soar 840% to about $1,600 and lift its market cap to $2.6 trillion by 2034.
If that happens, you would need to invest $120,000 in AMD to reach $1 million within the next 10 years. But if you can afford to wait a few more decades, AMD still has the potential to generate millionaire-making gains from even less money.
