Advanced Micro Devices (AMD 1.91%) is gradually evolving from mostly a traditional chip company to a prominent artificial intelligence (AI) infrastructure player. While Wall Street has been mostly focusing on Nvidia, AMD has quietly established itself as a strong player in the AI data center business. The company provides high-performance computing hardware and software solutions to clients for processing cloud and AI workloads.
In the first quarter of 2025, data center revenue grew 57% year over year to $3.67 billion, making up almost half of AMD's total revenue. Data center AI business revenue also increased by a double-digit percentage year over year, driven by increased shipments of the MI325X accelerators for new cloud and enterprise workloads.
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With AI inferencing costs escalating rapidly, AMD is in a better position to capture a bigger share of the AI market. Its Instinct GPUs are known to offer superior price performance than competitors. Here are some more reasons why the company may prove to be a surprise AI winner in 2025.
Data center business growth
AMD's data center business is experiencing robust momentum, driven by solid demand for its EPYC server processors and Instinct AI accelerators. AMD accounted for 25.1% share of the server CPU market, up 2 percentage points year over year, as EPYC server processors continue to be in high demand from both cloud players and enterprise customers. All major cloud players are engaging with the company in the development of fifth-generation EPYC CPUs, codenamed "Turin."
EPYC processors are also in high demand from enterprise customers across a range of industries and functions. The company expects enterprise adoption of EPYC processors to further accelerate, as more than 150 server platforms using these chips will become broadly available in the coming quarters.
The company's data center AI business is also gaining traction. Multiple Tier 1 cloud and enterprise customers have opted for AMD's Instinct AI accelerators in the first quarter. These clients include one of the largest frontier model developers, which has deployed Instinct GPUs to cater to a significant portion of its daily AI inferencing workloads.
AMD has also started sampling the next-generation MI350 series GPUs with several customers and is on track for production by mid-2025. With MI350 offering higher performance, memory capacity, bandwidth, support for new data types, and network efficiency as compared to the MI300 series, AMD expects strong deployment for these chips in the second half of 2025. Furthermore, the company is gearing up for the launch of MI400 series GPUs in 2026.
Strong software ecosystem
AMD is also focusing on strengthening its software ecosystem, mainly its ROCm software stack for programming the company's GPUs. Instead of releasing quarterly ROCm updates, the company is now delivering them on a biweekly basis.
The company has also increased access to its Instinct compute infrastructure for open-source developers to build, test, and deploy updates to the ROCm stack on a nightly basis. Subsequently, 2 million models on the open-source Hugging Face platform are running directly on AMD hardware without needing any special customization. The company is also ensuring that newly released AI models can run without hiccups on Instinct accelerators immediately after launch.
Finally, the recent acquisition of ZT Systems is enabling AMD to sell fully integrated AI systems, instead of just hardware components. All these AI initiatives can dramatically expand AMD's data center business in the coming years.
Demand for PC and gaming chips
AMD's client segment also reported a strong 68% year-over-year revenue jump to $2.3 billion in the first quarter. The company experienced record client CPU average selling prices (ASPs), driven by increased demand for its high-end desktop and Ryzen processors in gaming and commercial segments.
While AMD's processors are increasingly adopted in gaming desktops, the company is also seeing rising demand in the mobile computing market. Furthermore, sales of the company's latest-generation AI-capable processors also grew more than 50% quarter over quarter in the first quarter.
AMD is also making its presence felt in the commercial PC space, with the company closing deals with large enterprises across several industries.
Valuation
Despite the solid tailwinds, AMD's shares are currently trading at 21.7 times forward earnings, significantly lower than Nvidia's forward P/E multiple of 25.4.
While investors should not ignore the short-term revenue headwind arising from the export control restrictions for Instinct MI308 shipments to China, the fundamentals of the company are still strong. Hence, with a diversified product portfolio spanning various segments such as data center, gaming, and client; a robust balance sheet with $7.3 billion in cash; and a reasonable valuation position, AMD appears an attractive pick now.
