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At its GTC 2025 event this week, Nvidia (NVDA) CEO Jensen Huang asserted that data center buildouts will reach $1 trillion by 2028, earlier than his previous forecast of 2030. This has made the case stronger for Nvidia bulls to load up on the company’ss stock at current mouth-watering valuations.
While Nvidia remains the foremost player in the GPU market and has seen its data center segment sales skyrocket, this boon for the data center industry could also create a compelling reason for investors to bet on its nearest competitor. This number-two player is also the top-ranked data center stock as tracked by Barchart.
About Advanced Micro Devices Stock
Founded in 1969, Advanced Micro Devices (AMD), known commonly as just AMD, has never garnered as much attention as Nvidia amid the excitement around AI. However, it is a prominent chip company enowned for its innovative products in computer processing and related technologies. Its primary business includes designing and manufacturing semiconductor devices, including microprocessors, graphics processors, and motherboard chipsets.
Valued at a market capitalization of $173.6 billion, AMD increased its market share in the global GPU market to 17% from 10%. The stock is down 12.7% on a year-to-date basis.
So, compared to Nvidia's gargantuan market cap of nearly $3 trillion, the upside for AMD seems significant. Moreover, its rise in market share is an indicator of strength for the company. However, mere upside potential and market share gains may not nudge investors to add AMD to their portfolios. What may? Let’s have a closer look.
Solid Fundamentals
In Q4, the company reported record revenues of $7.7 billion which marked growth of 24% from the previous year. Revenues from the data center segment witnessed an even sharper growth of 69% in the same period to $3.9 billion, making up close to 51% of total quarterly revenue. Notably, the increasing revenues were accompanied by a rise in gross margins. Q4 2024 gross margins stood at 54% compared to 51% in the year-ago period, highlighting the competitive strength of the company.
Earnings went up 42% on a year-over-year basis to $1.09 while also coming in ahead of the consensus estimate of $1.08. Overall, over the past 16 quarters, AMD’s earnings have missed expectations on just three occasions.
Net cash from operating activities jumped by 3.5x from the prior year to $1.3 billion as the company closed the quarter with a cash balance of $3.8 billion with no short-term debt on its books.
In terms of outlook, in Q1 2025, AMD expects revenue to be in the range of $6.8 billion to $7.4 billion, the midpoint of which denotes yearly growth of 30%.
Encouraging Tailwinds
AMD’s strong fundamentals, particularly its expanding presence in AI and data centers, make the recent stock price weakness a compelling entry point. With steady advancements in CPUs and GPUs, the company’s growing market share suggests a margin of safety for investors.
AMD continues to push the boundaries of innovation, consistently delivering new generations of processors and graphics units. The upcoming MI350 series GPUs, based on the CDNA 4 architecture, are poised to make a significant leap in AI performance, with AMD stating during its earnings call that these chips will offer a 35x improvement in AI compute power over the previous CDNA 3 generation. While the MI325X AI accelerator made its debut in October 2024, the company recently announced that MI350 production will now begin earlier than anticipated, targeting mid-2025. Looking further ahead, the MI400 series is expected to launch in 2026.
A key differentiator for AMD’s MI350 Series is its 3-nanometer process node, setting it apart from Nvidia’s Blackwell architecture, which is built on 4-nanometer. The MI350 will also feature 288GB of HBM3E memory from Micron (MU), surpassing Blackwell’s initial 192GB configuration. Notably, AMD’s AI chips may present a strong value proposition due to lower pricing. Furthermore, the MI350's 3-nm architecture could provide notable gains in energy efficiency, a crucial advantage in AI workloads.
In terms of real-world adoption, AMD’s AI chips are gaining traction among major technology firms. Meta Platforms (META) has chosen AMD’s MI300 GPUs to power its Llama large language model, underscoring their competitiveness in high-performance AI tasks. Additionally, AMD’s processors are at the core of El Capitan, the world’s fastest supercomputer, housed at the Lawrence Livermore National Laboratory. El Capitan boasts an unprecedented 1.742 exaflops of computing power, making it a critical tool for scientific and defense applications. AMD now provides the processing power for five of the 10 fastest supercomputers globally, a testament to its leadership in high-performance computing.
Beyond GPUs, AMD is integrating AI capabilities directly into its 5th-generation EPYC processors, offering a native solution for AI inference that reduces reliance on GPUs. These processors cater to the broader AI market beyond the most intensive use cases, delivering higher efficiency and cost-effectiveness for a wider range of enterprises. With a diverse product portfolio spanning AI accelerators, high-performance CPUs, and leading-edge GPUs, AMD remains well-positioned to capitalize on the next wave of AI innovation.
Analyst Opinions on AMD Stock
Overall, analysts have attributed a rating of “Moderate Buy” for the stock with a mean target price of $147.10 which indicates an upside potential of about 40% from current levels. Out of 42 analysts covering the stock, 28 have a “Strong Buy” rating, one has a “Moderate Buy,” rating and 13 have a “Hold” rating.
