When it comes to generative artificial intelligence (AI) stocks, Nvidia typically steals the show. The chipmaker controls 88% of the market for AI chips, and its stock has returned a jaw-dropping 2,700% over the five years, minting plenty of millionaires and billionaires in the process.
Advanced Micro Devices (AMD 2.79%) has risen a relatively modest 250% over the same time. But can the new AI opportunity help it replicate Nvidia's explosive returns? Let's dig deeper to find out.
NASDAQ: AMD
Key Data Points
What is a millionaire-maker stock?
When I think of a millionaire-maker stock, I envision a relatively affordable company targeting a business opportunity that could double, triple, or even quadruple its valuation in the coming years. And on the surface, AI technology looks like AMD's next big break.
According to analysts at Bloomberg, the AI market could grow by 40% to 55% annually from $185 billion last year to between $780 and $990 billion by 2027 as organizations move past the current experimental phase and start implementing the tech into their daily operations. AMD would benefit substantially if it captured even a tiny fraction of such a massive opportunity. But so far, the company's results are lackluster.
Third-quarter revenue rose by a modest 18% year over year to $6.8 billion, while gross margin increased by 3 points to 50%. For comparison, in its most recent quarter, Nvidia saw revenue jump 122% year over year to $30 billion with a gross margin of 75%. However, a different picture emerges when we compare the two companies' different business compositions.
Some AMD segments aren't carrying their weight
Unlike Nvidia, which gets almost 90% of its revenue from its data center segment (where it sells its most advanced GPUs for AI and other applications), AMD is much more diversified. In the third quarter, the smaller company got around 51% of its sales from non-data-center segments. Some of these businesses (like gaming) performed extremely poorly, dragging down AMD's combined results in the period.
However, if AMD's data center business is separated from the rest of the company, third-quarter results tell a completely different story -- with segment sales up by a whopping 122% year over year to $3.5 billion. This number is more comparable to Nvidia's growth rate.
Image source: Getty Images.
AMD's management plans to drive continued growth in its data center business through new product releases. In October, the company launched its Instinct MI325X, a new line of AI chips designed to compete with Nvidia's Blackwell chips early next year. While AMD has long struggled to crack Nvidia's dominant position in the industry, AMD has plenty of room to compete based on potentially lower pricing because of Nvidia's astronomical gross margins of around 75%.
AMD also aims to release new chips annually to keep up with Nvidia's rapid pace of development. Another product called the Instinct MI400 is already planned for 2026.
Is AMD a millionaire-maker stock?
AMD's future will depend on whether AI technology transitions from being an experimental hype cycle to being a major driver of economic activity. It is still too soon to know for sure. That said, over the next few quarters, investors should expect the company's growth to accelerate as its data center business makes up a larger percentage of sales.
With a forward price-to-earnings of 27, AMD's stock looks remarkably cheap for a company that could soon reach a triple-digit growth rate. And it could outperform the market dramatically over the next few years. The company has many of the ingredients to be a long-term millionaire maker, and shares look like a strong buy.
