Despite supplying some of the world's most sought-after chips, Advanced Micro Devices (AMD +3.81%) has declined 49% since it peaked in March 2024. Over the same period, Nvidia stock has increased about 40%.
Nvidia makes the most advanced graphics processing units (GPUs) for data centers, which are used to develop artificial intelligence (AI) models. The company has benefited from a powerful first-mover advantage, capturing the lion's share of the market and adding trillions of dollars to its market capitalization in the process.
AMD is quickly catching up to Nvidia (technologically speaking) in the data center business, but it's also a leader in another area of the AI semiconductor race that could become a major source of growth. So, does the 49% decline for AMD stock represent the ultimate long-term buying opportunity?
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The AI revolution needs more than GPUs alone
Toward the end of 2023, AMD launched its MI300X data center GPU for AI workloads, which was designed to compete with Nvidia's flagship H100. It attracted many of Nvidia's top customers, including Meta Platforms and Microsoft, marking a highly successful launch into the AI GPU space.
AMD followed the MI300X with the MI325X last year, which was designed to match Nvidia's newer H200. According to AMD, some customers are yielding significant performance and cost advantages by using the MI325X over competing GPUs, a positive sign for the company's quest to capture market share.
That brings us to the MI350X, which will be AMD's most powerful GPU to date thanks to its new Compute DNA (CDNA) 4 architecture. It's expected to deliver a performance increase of 35 times compared to CDNA 3 chips like the MI300X, so it should rival Nvidia's new Blackwell lineup, which is currently the gold standard for AI.
AMD was planning to launch the MI350 series in the second half of 2025, but it's ahead of schedule, and customer samples are expected to be shipped this quarter with production ramping up into midyear.
But the data center won't be the heart of the AI boom forever. Companies like China-based DeepSeek are deploying highly efficient training and inference techniques to deliver globally competitive AI models using a fraction of the computing capacity (and financial resources) of industry leaders like OpenAI. That means computers, smartphones, and other devices could soon run AI software independent of external data centers.
AMD's Ryzen AI 300 Series chips for personal computers (PCs) were bred for exactly that purpose. They are currently the most powerful and best-selling chips in this segment of the market. The company expects PC manufacturers like Microsoft, HP, Lenovo, and Asus to launch over 100 commercial hardware platforms using Ryzen AI 300 Series chips during 2025.
The ability to process AI software on-device will create a much faster user experience, and it means people can tap into the power of this technology anywhere, even without an internet connection. Eventually, every computer and device will have the ability to run AI workloads, so AMD is on the cusp of a multiyear opportunity.
AMD's AI-related revenue is soaring
AMD had a record year in 2024. It generated $25.8 billion in revenue, and while that represented a modest growth rate of just 14% compared to the prior year, the real story lies beneath the surface.
Data center revenue soared 94% for the year to $12.6 billion, which included over $5 billion in GPU sales alone. CEO Lisa Su went into 2024 expecting to see just $2 billion of GPU sales, so the company far exceeded her initial expectations. Even better, she believes GPU revenue will scale into the tens of billions of dollars annually over the next few years.
The client segment -- which is home to the Ryzen AI chips -- generated $7.0 billion in revenue during 2024, up 52% year over year. Su believes this business unit will grow faster than the overall market during 2025, which suggests AMD will be taking even more market share from its competitors.
NASDAQ: AMD
Key Data Points
Why was AMD's overall top-line growth so slow compared to its data center and client segments? Because the company's other two business units, gaming and embedded, delivered annual revenue declines.
The gaming segment generated $2.6 billion in revenue for the year, down 58%. Customers have been waiting for AMD's next-generation Radeon 9070 gaming GPU, which will go on sale in March and should spark a gradual recovery in this segment's sales. The embedded segment generated $3.6 billion in revenue, down 33%, due to softness in some of AMD's biggest markets like industrials and communications.
But make no mistake -- although the gaming and embedded segments have been a drag on AMD's results, investors should remain focused on the performance of the company's AI businesses in the data center and client segments because that's where most long-term growth is likely to come from.
Image source: Getty Images.
AMD stock looks attractively priced
AMD stock sank last week following the release of its full-year 2024 results, partly because the company forecast a 7% sequential decline in its revenue for the first quarter of 2025, citing seasonality (the chip business is inherently cyclical). However, management still expects strong growth in its AI-powered data center and client businesses during the quarter, so it wasn't all bad news.
The stock is now sitting near its 52-week low, and its valuation is starting to look very attractive. The company delivered $3.31 in adjusted earnings per share (EPS) during 2024, placing the stock at a price-to-earnings ratio (P/E) of 32.5. Therefore, it's significantly cheaper than Nvidia, which trades at a P/E of 50.8.
Plus, Wall Street's consensus estimate (per Yahoo! Finance) suggests the company's EPS will soar 43% to $4.75 this year, giving it a forward P/E of just 22.6. In other words, the stock will have to climb some 40% this year just to maintain its current P/E multiple.
However, given the huge margin by which AMD beat Lisa Su's original forecast for GPU sales in 2024, combined with her expectations for future sales, there is every chance the company could deliver even better results in 2025 than Wall Street is anticipating.
Nevertheless, the AI revolution is still in its early stages, especially when it comes to computers and devices. Therefore, although the 49% dip in AMD stock looks like a great buying opportunity, investors should maintain a long-term position of five years or more to maximize their chances of yielding a positive return.
