With the war with Iran and the persistent whisper of an artificial intelligence (AI) bubble, the market has been volatile. However, one stock I've bought while some investors have panicked has been Advanced Micro Devices (AMD 5.22%), because the company has an underrated opportunity from agentic AI.
A big agentic AI opportunity
While Advanced Micro Devices (AMD for short) plays second fiddle to Nvidia in the graphics processing unit (GPU) market, it is the market-share leader in central processing units (CPUs). This market is much smaller than the huge one for GPUs, which provide the power to train large language models (LLMs) and run inference. CPUs, on the other hand, are often referred to as the brain of the computer.
Image source: Getty Images.
This has been a steady growth market, but with agentic AI set to take off, it is poised for meaningful revenue acceleration. The reason is that AI agents require far more sequential logic, which GPUs aren't designed to handle. This workload is shifting to CPUs, which excel at orchestrating tasks, managing application programming interfaces (APIs), and handling complex memory usage.
And the importance of high-performance CPUs for agentic AI could extend beyond data centers and into personal computers (PCs) as well. AMD's newest PC CPUs have been designed to handle systems that are always on and are capable of performing multiple AI tasks simultaneously.
In essence, AMD is looking toward a world where PCs become almost an extension of a worker, not just a tool. This is an added potential growth driver.
At the same time, after forging partnerships with OpenAI and Meta Platforms, AMD is also set to see strong GPU revenue growth in the coming years. The two companies have agreed to purchase 12 gigawatts worth of GPUs in aggregate, which is worth upward of $200 billion in orders.
While AMD will provide each of these partners with warrants equal to 10% of the company, the deal helps it get into these customers. The warrants to potentially buy AMD shares only become fully vested once the orders are deployed, and if AMD's stock hits certain price thresholds.
These large orders will get AMD's ROCm (Radeon Open Compute) software platform integrated into OpenAI and Meta's data centers, and make its GPUs a real alternative for their inference needs. It also strengthens their relationships at a time when data center CPU use is set to take off. ROCm is
an open-source software platform designed for GPU-accelerated computing, specifically targeting AI, machine learning, and high-performance computing.
Between its CPU opportunity and GPU commitments, AMD is a top AI stock.
