A Look at AMD’s Stock Journey: Is a Split on the Horizon?

Advanced Micro Devices (NASDAQ: AMD) has undergone six stock splits since its IPO in 1972. An investment of $10,000 at the initial offering price of $15 per share would have earned you 66 shares, which today have ballooned to approximately 18,666 shares worth about $2.24 million.

However, it’s been more than 24 years since AMD executed its last stock split on August 22, 2000. The stock was priced at $68.88 before the 2-for-1 split, which then brought the price down to $34.13. Since that split, AMD’s stock has surged nearly 250%.

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Although AMD has not officially announced another stock split, it seems plausible now that shares are trading around $120. Other major chipmakers, including Nvidia and Broadcom, have also recently split their stocks. This raises the question for investors: will AMD follow suit in the near future?

Image source: Getty Images.

Understanding Stock Splits

Although stock splits often create buzz in the market, they don’t actually reduce the overall cost of a stock. Essentially, a stock split divides the value of a share into smaller pieces, akin to selling one-fourth of a pizza for $5 instead of the entire pizza for $20. This action does not change key metrics like a company’s price-to-earnings ratio; it simply redistributes ownership shares without impacting the company’s overall market value.

In the past, stock splits were more crucial since retail investors typically had to buy whole shares. Nowadays, many major brokerages allow purchases of fractional shares, making it possible to invest in costly stocks without needing significant cash upfront.

Despite this shift, splits still generate market excitement as they can make high-priced stocks appear more affordable. Retail investors often aim for round lots (100 shares), which are simpler to manage compared to odd lots (fewer than 100 shares). Additionally, a lower stock price can lower the minimum investment for trading options. For instance, an options contract for AMD priced at $120 represents a $12,000 commitment, but if AMD’s price drops to $60, that commitment reduces to $6,000.

Stock splits can also facilitate companies in managing their stock-based compensation plans. However, for most investors, unless they are actively trading options or working for the company, a split might not make a substantial difference over time.

Focusing on AMD’s Growth Potential

Investors should concentrate less on the speculation surrounding a potential stock split and more on AMD’s recent growth trajectory and long-term potential. Though AMD remains an underdog in the x86 CPU and discrete GPU markets, it has significantly expanded its market share against Intel over the past decade, mainly due to producing more efficient chips and leveraging Taiwan Semiconductor Manufacturing for its production needs.

While Intel has struggled with production delays and technological setbacks, AMD has kept pace with Nvidia in the GPU sector and also launched powerful data center GPUs tailored for AI servers. As its core businesses have flourished, AMD has developed new Accelerated Processing Units (APUs) that combine CPUs and GPUs, supplying these chips to major clients like Sony and Microsoft.

During the first half of 2023, AMD’s revenue dipped in response to a slowdown in the PC and gaming console markets. However, in the latter half, revenue rebounded as the PC market showed signs of recovery amidst a better macroeconomic environment.

This resurgence can be attributed to AMD’s Zen CPUs for PCs and Epyc server CPUs along with Instinct GPUs for AI applications, compensating for a drop in sales from gaming and embedded chips. Looking ahead to 2024, analysts project AMD’s revenue and adjusted EPS to increase by 13% and 26%, respectively. For 2025, projected growth stands even higher, with revenue expected to rise 27% and adjusted EPS by 54%. Much of this growth will likely stem from data center chips, which accounted for nearly half of AMD’s revenue in the latest quarter.

Such projected increases are remarkable for a stock trading at just 24 times its forward earnings, especially compared to Nvidia, which, despite growing more rapidly in the AI chip sector, has a higher forward earnings multiple of 31.

Is Now a Good Time to Buy AMD’s Stock?

Though AMD may not yet capture significant revenue from the AI chip market like Nvidia does, it represents a strong investment as the semiconductor market grows. Given Intel’s ongoing challenges and market share declines, AMD’s future looks promising. While a stock split may not be imminent, investors could consider AMD a worthwhile buy at current levels.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and has the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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