AMD’s Resurgence: Is It Time to Invest Again?

AMD (NASDAQ: AMD) was once viewed as a struggling chipmaker, lagging behind Intel and Nvidia in x86 CPU (central processing unit) and discrete graphics processing unit (GPU) markets, respectively. However, over the past decade, its stock surged approximately 5,110%, making what was once a $20,000 investment worth over $1 million. Recently, though, its stock price has remained steady as the slow growth of the PC market counters the expansion of its more lucrative data center business. This raises the question: Is now a good opportunity for long-term investors?

Image source: Getty Images.

How AMD Outpaced Intel in the Last Decade

Since taking charge as AMD’s CEO in 2014, Lisa Su has transformed the company through three key strategies. First, AMD introduced custom accelerated processing units (APUs), combining CPUs and GPUs on a single chip. This innovation attracted major gaming console manufacturers like Sony and Microsoft, providing funds for its core CPU and GPU divisions as well as driving growth in its enterprise business.

Second, AMD revamped its CPUs to improve upon the underwhelming Bulldozer generation. By outsourcing production to TSMC, AMD adopted a “fabless” model, allowing it to surpass Intel, which faced production issues. This shift was pivotal in the ongoing quest for smaller, more efficient chips.

Lastly, AMD made significant strides into the data center market with its EPYC CPUs, Instinct GPUs, and the acquisition of Xilinx in 2022. These moves helped AMD challenge Intel’s stronghold in that sector, resulting in a remarkable revenue growth of 17% per year from 2014 to 2023.

According to PassMark Software, AMD’s share of the x86 CPU market grew from 23.4% in the fourth quarter of 2014 to 36.4% in the fourth quarter of 2024, while Intel’s share dropped from 76.6% to 61.5% in that timeframe.

Review of AMD’s Performance This Past Year

In the first half of 2023, AMD experienced a revenue decline due to a slowdown in the PC market, which followed a surge in demand during the pandemic. Difficulty in selling aging gaming consoles from Sony and Microsoft added to the challenge.

Fortunately, AMD’s revenue rebounded in the latter half of the year as the PC market stabilized. It saw growth from sales of its Zen 5 CPUs, EPYC CPUs, and Instinct GPUs, which contributed positively to its overall revenue despite a drop in gaming-related sales.

Data source: AMD. YOY = Year-over-year. EPS = earnings per share.

AMD’s gains also stemmed from Intel’s missteps. As Intel struggled to keep pace with TSMC in chip production, it experienced leadership changes and faced production delays. Attempting to remain competitive in AI, AMD began offering its Instinct GPUs at lower prices than Nvidia’s H100 GPUs, resulting in more than half of its revenue from data center products in the third quarter of 2024.

What Lies Ahead for AMD?

It appears that AMD has moved past the most challenging phase of its recent slowdown. For Q4, AMD projects a year-over-year revenue increase of around 22%, coupled with an adjusted gross margin of 54%. Analysts predict that revenue and adjusted earnings per share (EPS) will rise by 13% and 25% for the full year. Furthermore, expectations for 2025 include revenue and adjusted EPS growth of 27% and 56%, respectively.

These growth figures are impressive for a company whose stock currently trades at 26 times its forward earnings. In comparison, Nvidia and Intel trade at 33 and 23 times forward earnings, respectively. Although Nvidia has demonstrated rapid growth, it carries a higher risk due to its heavy reliance on AI, which accounts for 88% of its recent revenue. Conversely, Intel remains a more challenging investment due to numerous ongoing issues compared to AMD.

Given these circumstances, AMD presents an enticing buying opportunity. While its 2023 slowdown unnerved some investors, momentum is shifting toward growth, bolstered by an expanding AI sector and the potential for continued market share gains from Intel.

Don’t Overlook This Potential Investment Opportunity

Many investors have experiences where they felt they’d missed out on successful stock investments. For those worried about lost opportunities, this could be the moment to act.

Occasionally, our analysts pinpoint “Double Down” stock recommendations for companies poised for growth. If you’re concerned about missing a chance to invest, now may be the time to seize this moment while you still can. The results are striking:

• Nvidia: an investment of $1,000 since our 2009 recommendation would be worth $348,112!*
• Apple: investing $1,000 back in 2008 would now yield $46,992!*
• Netflix: if you had invested $1,000 when we doubled down in 2004, it would now be worth $495,539!*

Currently, we are issuing “Double Down” alerts for three outstanding companies, and opportunities like this may not come around again soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 16, 2024

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 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 the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.