AMD Poised for Growth as Nvidia Faces Rising Competition

Nvidia (NASDAQ: NVDA) CEO Jensen Huang estimates that data center operators will invest $1 trillion in infrastructure over the next five years to meet the increasing demands of artificial intelligence (AI) developers. A significant portion of this budget will be allocated to graphics processing units (GPUs), known for their capacity to effectively handle AI training and inference tasks.

Nvidia leads the data center GPU market, witnessing a remarkable 173% stock surge in 2024 driven by strong sales growth. However, competition is heating up as Advanced Micro Devices (NASDAQ: AMD) has introduced its own GPUs, attracting key customers from Nvidia’s portfolio.

The Wall Street Journal reports that 56 analysts covering AMD stock predominantly recommend it as a buy, with no analysts suggesting a sell. This positive perspective highlights why AMD stock could be a strong option, particularly for current Nvidia investors.

Image source: Getty Images.

Exploring AMD’s Expanding AI Potential

Nvidia’s flagship H100 GPU, introduced in September 2022, achieved a staggering 98% market share in 2023 due to a lack of alternatives. This dominance faced new competition from AMD’s MI300X GPU launched in December, which, despite its late entry, has quickly gained traction in 2024.

The MI300X is now utilized by several prominent clients, including Microsoft, Oracle, and Meta Platforms. AMD claims these companies are experiencing improved performance and reduced costs compared to the H100, indicating a favorable shift in market share dynamics.

AMD plans to ship its MI325X this quarter, boasting up to 20% enhanced AI inference performance compared to Nvidia’s H200, which replaced the H100 earlier this year. This performance improvement can lead to significant cost savings as AI developers often pay for computing time by the minute.

Looking further ahead, investors are focused on AMD’s upcoming MI350 series, expected in the latter half of 2025. Utilizing the CDNA (Compute DNA) 4 architecture, the MI350 is projected to deliver a 35-fold performance increase over current MI300X GPUs. This model will directly compete with Nvidia’s latest Blackwell-based GPUs, which are currently experiencing high demand.

Additionally, AI is shifting beyond traditional data centers, with AMD developing the Ryzen AI 300 series—comprising CPUs, neural processors, and GPUs—to handle AI workloads directly on devices. This strategy aims to improve user experience by diminishing dependence on remote data centers.

Global shipments of Ryzen AI-powered PCs have already begun from major brands like Lenovo, Microsoft, and HP. Lenovo and HP project that they will triple their offerings of Ryzen AI devices by the end of 2024, with AMD forecasting over 100 commercial platforms utilizing its AI chips by 2025.

AMD’s Impressive Growth in AI Revenue

AMD’s financial report for the third quarter of 2024 (ending September 28) showed record revenues of $6.8 billion, an 18% increase from the previous year. Underlying this figure was a remarkable 122% year-over-year surge in data center revenue, reaching $3.5 billion, attributed to robust GPU sales. Initially, AMD CEO Lisa Su projected $2 billion in annual data center GPU revenue, but that estimate has now risen to over $5 billion.

The client segment, which includes the Ryzen AI chip series, also thrived, reporting a 29% revenue growth to $1.9 billion. Su suggests that we are still in the nascent stages of the AI PC boom, hinting at potent future growth in this area.

Conversely, AMD encountered significant challenges in its gaming segment, with revenue declining by 69%. This downturn stems from reduced demand for consoles like Sony‘s PlayStation 5 and Microsoft’s Xbox, coupled with desktop gamers awaiting AMD’s next-gen GPUs, set to release in 2025.

Wall Street’s Optimistic Outlook on AMD

Over the past four quarters, AMD achieved $3.00 in non-GAAP (adjusted) earnings per share. Based on the stock’s current price of $148.60, it is trading at a price-to-earnings (P/E) ratio of 49.5, which is slightly less than Nvidia’s ratio of 63.1.

Furthermore, Wall Street analysts predict AMD will earn $5.20 per share in 2025, reducing its forward P/E ratio to 28.6. This optimistic forecast may contribute to the strong buy consensus among analysts.

Among the 56 analysts monitored by The Wall Street Journal, 39 have assigned AMD stock a buy rating, while eight maintain an overweight (bullish) outlook, and nine recommend holding.

Recall Jensen Huang’s estimate that data center operators will invest $1 trillion in AI infrastructure over the next five years. AMD anticipates that the market for its chips alone could reach $500 billion by 2028, reflecting an impressive annual growth rate of 60% in this sector.

While Nvidia may currently lead the market, AMD’s rising GPU sales and innovative developments—such as the forthcoming MI350—position it as a significant competitor in the years ahead. With Nvidia’s market share likely to contract as competition intensifies, AMD represents a strategic opportunity for investors holding Nvidia stock, as well as a solid entry point for those exploring the AI chip market.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, HP, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.