AMD Sees Growth in AI and Data Center Business Amidst Market Shifts

Advanced Micro Devices (NASDAQ: AMD) is transitioning from a traditional chip manufacturer to a key player in artificial intelligence (AI) infrastructure. While much attention has focused on Nvidia, AMD is carving out a significant role in the AI data center sector. The company delivers high-performance computing hardware and software solutions for handling cloud and AI workloads.

Strong Revenue Growth in Data Centers

In the first quarter of 2025, AMD’s data center revenue surged 57% year-over-year, reaching $3.67 billion, nearly half of the company’s total revenue. Notably, revenue from the AI segment also experienced double-digit growth, driven primarily by increased shipments of MI325X accelerators for cloud and enterprise tasks.

With rising AI inferencing costs, AMD finds itself well-positioned to capture additional market share. Its Instinct GPUs are recognized for superior price-performance compared to competitors, suggesting that AMD could emerge as a noteworthy AI contender in 2025.

Data Center Business Expansion

AMD’s data center operations are experiencing strong momentum, largely due to a robust demand for its EPYC server processors and Instinct AI accelerators. The company has attained a 25.1% share of the server CPU market—up 2 percentage points from the previous year—thanks to the sustained need from cloud providers and enterprise clients. All major cloud players are collaborating on the development of the fifth-generation EPYC CPUs, codenamed “Turin.”

Enterprise demand for EPYC processors is also thriving, with over 150 server platforms using these chips expected to launch in the coming quarters, further accelerating adoption.

Multiple Tier 1 customers are now utilizing AMD’s Instinct AI accelerators, including a leading frontier model developer deploying these GPUs for substantial daily AI inferencing tasks. AMD plans to begin production of its next-generation MI350 series GPUs by mid-2025, offering enhanced performance and capabilities over the MI300 series. This could lead to strong deployment in late 2025, followed by the anticipated launch of MI400 series GPUs slated for 2026.

Enhancing the Software Ecosystem

In addition to hardware advancements, AMD is actively enhancing its software ecosystem, particularly its ROCm software stack for programming GPUs. The company has shifted to deliver biweekly updates instead of quarterly, improving responsiveness and usability.

Moreover, AMD has increased access to its Instinct compute resources for open-source developers, allowing nightly testing and updates to the ROCm stack. As a result, 2 million models on the Hugging Face platform now operate directly on AMD hardware. Such initiatives ensure that newly released AI models perform smoothly on Instinct accelerators right after their launch.

The acquisition of ZT Systems is another strategic move, enabling AMD to offer fully integrated AI systems rather than just hardware components. This comprehensive approach is expected to significantly expand AMD’s data center business in the upcoming years.

Positive Trends in Client Segment

AMD’s client segment reflected notable growth, with a 68% year-over-year revenue increase to $2.3 billion in the first quarter. The company reported record average selling prices (ASPs) for client CPUs, fueled by heightened demand for high-end desktop and Ryzen processors across gaming and commercial sectors.

Adoption is surging in mobile computing as well. Additionally, sales of AMD’s latest generation of AI-capable processors rose over 50% quarter-over-quarter during the first quarter. The company is also establishing a foothold in the commercial PC market, closing deals with large enterprises in various industries.

Current Valuation Perspective

Despite favorable trends, AMD’s shares are trading at a forward price-to-earnings ratio of 21.7, which is significantly lower than Nvidia’s forward P/E multiple of 25.4. While potential short-term revenue challenges from export restrictions on Instinct MI308 shipments to China exist, AMD’s fundamentals remain strong. Its diversified product lineup, robust balance sheet with $7.3 billion in cash, and reasonable valuation suggest that AMD may be an appealing investment choice at this time.

Is Now the Right Time to Invest in AMD?

Before investing in Advanced Micro Devices, it’s essential to consider the broader investment landscape.

Manali Pradhan has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.

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