When it comes to AI computing hardware, few have challenged Nvidia's (NVDA 3.17%) dominance, including rival Advanced Micro Devices (AMD 1.94%). However, several positive things seem to be happening for AMD, and it's starting to look like a viable investment option.
On the flip side, there are fears of an AI bubble forming. Is it too late for AMD to gain ground in the AI race? Or could 2026 be the year when it finally hits its stride and becomes an AI winner?
Image source: Getty Images.
AMD is making a key improvement to its offering
The reason why companies have, by and large, preferred Nvidia's hardware to AMD's often had little to do with the graphics processing units (GPUs) themselves. Instead, Nvidia's supporting hardware and its software were more advanced than AMD's, which caused most companies to utilize Nvidia's technology stack.
AMD recognized this flaw and worked to improve itself. Thanks to its Nod.ai acquisition, AMD's ROCm software has improved dramatically, with downloads rising 10x year over year, according to AMD. This shows momentum in a key area that AMD was lacking in, and it's also going to get some outside help. In October, OpenAI and AMD announced a partnership for AMD to provide six gigawatts of computing power. One other notable part of that announcement was OpenAI and AMD's collaboration on controlling software, which will continue to boost AMD's attractiveness.
NASDAQ: AMD
Key Data Points
Another area where AMD could see some business gains is China. Currently, both AMD and Nvidia are restricted from exporting their chips to China. However, AMD CEO Lisa Su stated that it's ready to pay a 15% export tax to the U.S. in exchange for being able to sell its chips to China, specifically its MI308 AI chip. This is a downgraded version from what is available in the U.S.
China is a massive artificial intelligence market, and gaining access to it would be a huge win for AMD. Time will tell what the Trump Administration decides to do, but I'd expect resolution on this issue sometime in 2026, and the announcement could cause AMD shares to rise.
As another potential bullish point, it's well-known that AMD's chips are far cheaper than Nvidia's. However, Nvidia has earned the right to charge a premium due to its impressive performance. With all the focus on how much money the AI hyperscalers are dumping into data centers (and a renewed sense of financial restraint, which many investors are calling for), it could cause some of these companies to switch to cheaper computing options. A sentiment change like that would also boost AMD's stock, making it a great pick for 2026.
There are a lot of trends working in AMD's favor right now, and I could see AMD being a fantastic performer in 2026. AMD's management also feels these tailwinds and has made some bold calls as a result.
AMD expects monster growth over the next five years
During its financial analyst day, AMD revealed that it expects data center revenue to rise at a 60% compound annual growth rate (CAGR) through 2030. Compared to the 22% growth AMD delivered during Q3, that would mark a massive acceleration. A 60% CAGR for AMD would be impressive, but it would require AI hyperscalers to switch over to AMD's technology stack, which could be wishful thinking.
Still, management likely knows more than individual investors do, and the company could have already received orders that will show up in 2026's results.
AMD Revenue (Quarterly YoY Growth) data by YCharts.
AMD is more than just data center chips. It also has a large OEM and gaming division and an embedded processor segment. These business units aren't expected to grow as fast, with a 10% CAGR expected over the next five years. That brings AMD's total revenue CAGR to 35% through 2030, which is still an impressive mark.
If AMD can grow somewhat near this projected 35% CAGR during 2026, the stock will likely transform into a winner. But if its data center business, in particular, struggles to gain momentum, AMD may be stuck playing second fiddle to Nvidia over the next five years.
