Advanced Micro Devices (AMD 4.02%) supplies chips for everything from computers to game consoles to cars. However, the company's main focus right now is beating Nvidia (NVDA 2.56%) in the market for data center chips, specifically the graphics processing units (GPUs) used in artificial intelligence (AI) development.
Nvidia's GPUs continue to lead the industry, but AMD's newest releases are being snapped up by some of the world's biggest tech companies because of their solid performance and relatively low cost of ownership.
AMD stock has plummeted 23% from its recent record high amid the sell-off in the broader market. Could this be the ultimate buying opportunity for investors?
Image source: Advanced Micro Devices.
AMD will soon launch its most powerful GPUs yet
AMD's latest MI350 series GPUs are based on the company's Compute DNA (CDNA) 4 architecture. CDNA 4 is designed to rival Nvidia's industry-leading Blackwell chip architecture, and AMD says it offers total cost of ownership (TCO) advantages in real-time AI inference workloads. In other words, MI350 series GPUs can run AI software apps and agents at a much lower cost than competing chips.
Oracle and Meta Platforms are among the early adopters of CDNA 4 chips. Oracle, for example, ordered a whopping 131,000 MI355X GPUs earlier this year in a multibillion-dollar deal, which will form the Oracle Cloud Infrastructure Zettascale SuperCluster.
But attention is now turning to 2026, when AMD plans to release its MI400 series GPUs. They will be paired with specialized software and hardware systems to create a fully integrated data center rack called Helios. According to AMD CEO Lisa Su, this setup will make the MI400 a staggering 10 times more powerful than the MI350 series GPUs, which will be a huge step forward in the company's battle against Nvidia.
But AMD's AI opportunity transcends the data center, because it's also a leading supplier of chips for computers and notebooks. Its Ryzen AI chipsets include GPUs, central processing units (CPUs), and neural processing units (NPUs) to give personal computers the capacity they need to run AI software applications locally. This means workloads don't have to bounce to and from data centers, thus creating a much faster user experience.
Dell, HP, Acer, and Asus are just some of the top manufacturers embedding Ryzen AI chipsets into their latest computers.
AMD's AI data center opportunity could be worth over $100 billion
AMD generated $9.2 billion in total revenue during the third quarter of 2025 (ended Sept. 27), which was up 36% from the year-ago period. Its data center business was the largest contributor out of the company's three core segments, bringing in $4.3 billion on its own, led by AI GPU sales.
In October, AMD signed a blockbuster deal with OpenAI to deliver up to 6 gigawatts of GPU capacity by 2030. Although the deal has a few caveats, AMD believes it will help its data center business generate well over $100 billion in revenue during the next few years, so there could be substantial growth ahead.
AMD's client segment, which is where it accounts for Ryzen AI sales, also delivered spectacular growth during the third quarter. Its revenue came in at $2.7 billion, soaring by 46% compared to the year-ago period.
NASDAQ: AMD
Key Data Points
AMD stock isn't cheap, but it could be a solid long-term buy
AMD generated adjusted (non-GAAP) earnings of $3.73 per share over the last four quarters, placing its stock at a price-to-earnings (P/E) ratio of 54.6. That is a sharp premium to Nvidia stock, which trades at a P/E multiple of 44.4.
Revenue from Nvidia's data center business grew by a whopping 66% during its most recent quarter, compared to just 22% for AMD's data center business. Not to mention, Nvidia's data center sales were more than 11 times higher than AMD's, so there is also a substantial size disparity.
As a result, it's hard to justify the premium valuation in AMD stock relative to Nvidia stock, so short-term investors who are looking for blistering gains over the next few months might be left disappointed. That doesn't mean AMD stock is a bad buy. It simply means investors need to adopt a long-term outlook to maximize their chances of earning a positive return.
For example, if AMD's data center business generates over $100 billion in revenue over the next few years as expected, its current stock price might look cheap in hindsight. Even if we look ahead just one year, Wall Street's consensus estimate (provided by Yahoo! Finance) suggests AMD's earnings could grow to $6.42 per share in 2026, placing its stock at a forward P/E ratio of just 31.7.
That leaves room for upside over the next 12 months as long as Wall Street's forecast proves to be accurate. Therefore, although AMD stock isn't necessarily cheap today despite its recent 23% slump, it could still be a great buy for patient investors.
