Advanced Micro Devices (AMD +11.44%) has had a forgettable run in the past year. As of this writing, the chipmaker has lost 35% of its value, which is in stark contrast to the 23% gains logged by the PHLX Semiconductor Sector index over the same period.
AMD's inability to jump on the artificial intelligence (AI) bandwagon at a time when such peers as Nvidia and Broadcom witnessed a remarkable surge in demand for their AI chips is one of the biggest reasons the stock has been underperforming. As it turns out, AMD reportedly controls only around 5% of the AI chip market, while Nvidia's share stands at a massive 84%.
NASDAQ: AMD
Key Data Points
Moreover, AMD's product development moves haven't been good enough to help it dent Nvidia's dominance. At the same time, AMD's financial performance has been improving of late, suggesting it may be worth buying. The company has a solid set of catalysts that can come together and turn its fortunes around on the stock market.
In this article, we will examine those catalysts more closely and determine whether it is the right time to buy this beaten-down semiconductor stock.
AMD is on track for a better year
AMD may be the smaller player in the AI accelerator market, but it is well placed to capitalize on other areas that could witness a bump in sales thanks to AI. For instance, the personal computer (PC) market is expected to improve in 2025 due to multiple tailwinds, such as the end of support for Windows 10 PCs and the growing adoption of AI-enabled PCs.
Market research firm IDC is expecting 4.3% growth in the PC market this year, up from 1% growth seen in 2024. While that may not look like much, investors should note that AMD has been cornering a bigger share of the PC central processing unit (CPU) market. Its share of client PCs was up 4.6% year over year to 23.9% in the third quarter of 2024, indicating it still has a lot of room to grow in this market.
The good part is that AMD has been aggressively going after Intel's dominant position in the client CPU market. It launched a slew of new AI-capable CPUs at CES 2025. More importantly, AMD announced the expansion of its relationship with Dell Technologies, with the latter set to deploy its CPUs in commercial PCs. AMD estimates that its Ryzen AI Pro CPUs will power more than 100 commercial PC platforms this year, putting the company in a position to grab more share in the PC market.
A similar trend is expected in the server CPU market as well. AMD has a 24.2% share in server processors, and that number could head higher as its latest fifth-generation Epyc server CPUs are likely to witness strong adoption on account of their AI credentials. AMD management believes it gained server CPU share in the third quarter of 2024 thanks to the growing demand from enterprise customers.
The company points out that more than 130 fifth-generation Epyc enterprise platforms are under development. Major cloud providers like Alphabet's Google and Oracle are on track to deploy cloud instances powered by the latest Epyc processors.
Favorable market share trends in both client and server CPUs are expected to positively impact AMD's financial performance in 2025. Analysts are forecasting its sales growth rate to double this year to nearly 26% compared to 2024's estimated growth. Meanwhile, AMD's earnings growth is expected to accelerate as well over the next couple of years from last year's estimated earnings of $3.33 per share.
AMD EPS Estimates for Current Fiscal Year data by YCharts. EPS = earnings per share.
Additionally, AMD could get a boost from a potential turnaround in its embedded business. The company witnessed a 25% year-over-year decline in this segment's revenue in the third quarter of 2024, owing to softness in the industrial market. AMD, however, sees a gradual recovery taking place in this market.
Even better, the chipmaker was on track to deliver a 20% jump in the number of design wins for its embedded chips in 2024. As a result, AMD believes it is on track to grow its "embedded business faster than the overall market in the coming years."
So, AMD has multiple growth opportunities investors can count on despite the chipmaker becoming a bit-part player in the AI graphics processing unit (GPU) market.
More reasons to buy the stock
We have seen that AMD should deliver impressive earnings growth in 2025 and 2026. A forward earnings multiple of just 24 means investors can buy this chip stock at a really attractive valuation that's lower than the tech-laden Nasdaq-100 index's forward earnings multiple of 27.
What's more, according to Yahoo! Finance, AMD has a price/earnings-to-growth (PEG) ratio of just 0.3 based on its projected earnings growth for the next five years. This ratio tells us how a stock is valued with respect to its future earnings growth, and it is derived by dividing the price-to-earnings ratio by the estimated earnings growth over the next five years. A reading of less than 1 indicates a stock is undervalued.
So, AMD seems significantly undervalued based on the potential growth that it could deliver, which is why buying it right now seems like a smart move.
