High-performance and adaptive computing leader Advanced Micro Devices (NASDAQ:AMD) is an up-and-coming rival to de facto AI leader NVIDIA. With its AI chips, graphics, and visualization technologies, AMD is more than a one-trick pony but make no mistake about it artificial intelligence applications are what’s keeping investors chomping at the bit.
Yet the stock has been falling short of NVIDIA’s price mushroom over the past few years, and that relative lag in performance has those on the sidelines wondering whether it can play catch up and beat the SPY in the process?
What Could Spark an AMD Rally?
It’s become clear that data centers are the biggest play on AI currently and in that regard AMD falls squarely into the bulls eye. But it’s offerings aren’t limited there and included embedded, gaming, and PC markets. AMD’s wide product portfolio includes processors, accelerators, graphics, adaptive SoCs, FPGAs, SOMs, and software, tools, as well as apps.
Recently, AMD signed a Letter of Intent (LOI) with the Commissariat à l’énergie atomique et aux énergies alternatives of France, to deliver components, and system architectures that will support AI applications. These kinds of deals are likely the tip of the iceberg of what investors can expect from the company over the coming 24 months.
By way of example of what investors can look forward to, AMD joined forces with data-first generative AI drug creation company Absci Corporation to deploy AMD Instinct™ accelerators and ROCm™ software in order to power critical AI drug discovery workloads.
The Customer Base Is Growing Really Fast
Over the last two months, AMD has been laser-focused on getting customers who are demanding chips for data centers what they need, and serving demand which in turn is driving up the customer base. That focus spans the product suite. For example, it delivered the industry’s highest computing performance in a single-chip device with the introduction of the Versal RF Series adaptive SoCs.
The company also unveiled new processors at the beginning of 2025 to bring cutting-edge performance – Ryzen™ AI Max Series processors, Ryzen™ AI 300 Series “Zen-5”-based processors, and Ryzen™ 200 Series processors.
Further, management is cementing the firm’s leadership in the desktop, mobile, and handheld gaming segment thanks to the new Ryzen™ 9900X3D and 9950X3D Series desktop processors, which are leading the pack for desktop gamers.
They also launched a full series of AMD-powered Dell notebooks, desktops, and workstations for modern enterprises as part of a deal with Dell.
Sales Still Rising At a Fast Pace
In the fourth quarter, AMD saw revenue growth of 12.3% from the prior quarter and 24.2% year-over-year, totaling $7.66 billion. The data center segment alone drove growth of over 69%, reaching a record $3.86 billion in the quarter. The company’s non-GAAP gross profit was up over 32% from the year-ago value of $4.14 billion, whereas the gross margin extended by three percentage points to 54%.
Furthermore, AMD’s non-GAAP operating income climbed to $2.03 billion during the quarter, a strong leap forward of 43.5% from the prior year’s quarter. Adjusted EBITDA popped to $2.21 billion which translated to a 40.3% year-over-year percentage gain.
Non-GAAP net income stood at $1.78 billion for the quarter, compared to $1.50 billion in the prior quarter and $1.25 billion during the prior-year quarter. AMD’s non-GAAP EPS increased 41.6% from the prior-year quarter to $1.09. The company’s total assets stood at $69.23 billion as of December 28, 2024, compared to $67.88 billion as of December 20, 2023.
Will AMD Beat the S&P 500?
If AMD rises to analysts consensus of $148 per share over the next 12 months, it will very likely beat the market in percentage terms.
The prospects of Advanced Micro Devices alone seem quite promising and, in the last few months alone, AMD has brought so many products to market that are matching customer needs that the customer base is really swelling. For example, it’s introduced innovations for enterprises, gamers, and other customer categories to enhance their operations and experiences.
Every nook of the world and every industry is excited about adopting AI into their operations. Statista forecasts the U.S. AI market to expand at a noteworthy CAGR of 27.6%, resulting in a market value of $ 223.70 billion by 2030.
AI is opening exponential opportunities for AMD and will very likely propel its growth for a long time in the future. Also, the rapidly surging demand for data centers is likely to accelerate the company’s revenue, with its other segments also growing at impressive rates.
To wrap it up, under the above scenarios and circumstances, AMD stock appears to be a Buy at this time, as also reflected by the opinions of 43 analysts. The consensus price target for AMD that is almost 27% higher seems like a compelling reward to risk play given it’s trading cheap at 23.91x forward non-GAAP earnings compared to the industry average of 25.38.
And for the cherry on top, Advanced Micro also has a strong cash flow position, which will spark further growth. As of the end of the fourth quarter, the company’s free cash flow totaled $1.09 billion, compared to just $242 million during the same period last year. When you connect all the breadcrumbs, there is lots to like, even if the share price has been underwhelming relative to NVIDIA and other AI stocks of late.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
