It's been a rough 12 months for Advanced Micro Devices (AMD +7.80%) shareholders. AMD stock peaked in early 2024, and it's been tumbling ever since. Right now, shares are down roughly 50% from that all-time high.
There are parts of AMD that are performing well and parts that have been struggling. Revenue and adjusted earnings are on the rise, but clearly, investors are worried about something.
Is AMD stock a buy-the-dip opportunity? Or should investors steer clear?
NASDAQ: AMD
Key Data Points
The good: Server and PC CPUs
AMD's core CPU business is booming. The company has been able to take advantage of a struggling Intel to grow its market share across the board. In the fourth quarter of 2024, AMD managed a 24.7% unit share and a 28.2% revenue share of the combined server and PC CPU markets. That's a dramatic increase from six years ago, particularly in the server CPU market.
AMD's EPYC server CPUs have been a hit, and it was only recently that Intel was able to catch up in terms of core counts and performance with its Granite Rapids chips. In the PC CPU market, AMD's Ryzen CPUs have been growing in popularity. The company was handed a gift by Intel in the desktop CPU market with Arrow Lake, Intel's latest desktop chips. Arrow Lake suffered from lackluster gaming performance, making AMD an easy choice for many PC gamers.
The laptop CPU market is more competitive, and gaining market share requires winning over OEMs rather than selling directly to consumers. AMD has still gained plenty of ground, although Intel's efficient Lunar Lake chips and the mobile version of Arrow Lake are putting up a good fight.
AMD's client segment revenue, which houses the PC CPU business, soared 58% year over year in the fourth quarter as the company gained share in a sluggish market. The data center segment grew revenue by 69%, although this segment also contains AI accelerators. Even so, AMD's EPYC chips were a key driver of that growth.
The bad: AI forecast, gaming, and embedded
AMD is making a play for the AI accelerator market, and while billions in new revenue has materialized so far, growth is now coming under pressure. AI accelerator revenue topped $5 billion in 2024, but the company only expects "strong double-digit growth" this year.
AMD isn't providing specific guidance beyond that rough estimate, which is likely not a good sign. The company sees a $500 billion total addressable market by 2028, but it's clearly struggling to steal away market share from Nvidia.
Outside of AI, two of AMD's segments are having major problems. The gaming segment, which includes PC GPUs and semi-custom game console chips, saw revenue tumble 59% in the fourth quarter. Declining semi-custom chip revenue is a biggest issue as the current generation of game consoles age, but AMD's inability to gain ground in the gaming GPU market is also concerning.
AMD's market share across the entire GPU market was just 10% in the third quarter of 2024, partly due to supply constraints, and partly due to Nvidia's continued dominance.
AMD's embedded segment, which was supercharged by the mega-acquisition of Xilinx, is also suffering from sales declines. Revenue was down 13% in the fourth quarter and 33% for all of 2024, driven by weak end-market demand and excessive levels of customer inventory. The Xilinx deal was valued at roughly $50 billion, but the embedded segment is now generating less than $1 billion in revenue per quarter.
Is AMD a buy?
AMD stock trades for around 25 times the average analyst estimate for 2025 adjusted earnings per share. Given the company's current situation, the stock doesn't look particularly attractive, but it's not obviously overpriced, either.
AMD's AI chip business is the biggest problem from a long-term growth perspective. The company isn't growing as fast as it needs to, given the size of the market and the seemingly bottomless demand for AI computing infrastructure. Weak AI chip growth this year puts a big dent in the company's growth story.
In the CPU business, AMD will need to contend with Intel, which has a new CEO who will likely shake things up. That could mean increased aggressiveness on pricing, quicker product development, and a newfound willingness to take risks. Intel has also completed development of the Intel 18A manufacturing process, which could give it an advantage once its future chips enter production.
Given AMD's valuation and a growth story that can best be described as a mixed bag, AMD stock doesn't look like the best opportunity right now. It's not a bad stock to own for the long term, but it's also far from a screaming buy.
