Advanced Micro Devices (AMD 3.07%) stock has sold off in recent weeks. Weak PC sales and worries about competition in the artificial intelligence (AI) accelerator market seem to have weighed on the stock.
On the surface, one can see why AMD has struggled. Its $18 billion in revenue for the first nine months of 2024 rose 10%, far below the triple-digit revenue increases of its main rival, Nvidia. Moreover, revenue in AMD's gaming and embedded segments is down 58% and 38%, respectively, in the first three quarters of 2024.
Nonetheless, a secular trend in the chip market should stop the decline and send the stock soaring over the next few years. Here's why.
NASDAQ: AMD
Key Data Points
AMD's advantage
Despite competitive concerns, investors should not write off the AI accelerator business and its ability to fundamentally change AMD. Allied Market Research forecasts a compound annual growth rate of 38% for the AI chip market through 2032, indicating a strong likelihood of experiencing massive growth over that eight-year period.
With the shortage of Nvidia accelerators, customers like Microsoft and Meta Platforms have also turned to AMD. Consequently, data center revenue (which includes AI accelerators) grew 107% in the first nine months of 2023.
More importantly, the data center segment was 48% of AMD's revenue so far this year. As of now, Nvidia's data center segment is 87% of revenue in the first nine months of fiscal 2025 (ended Oct. 27). Over time, the data center segment is on track to make up more of AMD's revenue, perhaps even matching Nvidia's 87% share eventually.
Indeed, a recovery in other segments could also reduce the percentage of revenue coming from the data center segment. However, regardless of the revenue source, the improving growth likely means that AMD stock will prosper over the next eight years.
