Can AMD Follow Nvidia’s AI Lead?
In the world of generative artificial intelligence (AI) stocks, Nvidia is often the star player. With an impressive 88% share of the AI chip market, the company has seen its stock soar an incredible 2,700% over the past five years, creating numerous millionaires and billionaires along the way.
Advanced Micro Devices (NASDAQ: AMD) has achieved a more modest rise of 250% during the same period. But can the burgeoning AI sector help AMD replicate Nvidia’s remarkable performance? Let’s explore this further.
Understanding Millionaire-Maker Stocks
A millionaire-maker stock is often seen as an affordable company poised to take advantage of a business opportunity that could significantly boost its valuation in the coming years. AI technology appears to be a ripe opportunity for AMD.
Bloomberg analysts project that the AI market might expand by 40% to 55% each year, increasing from $185 billion last year to somewhere between $780 and $990 billion by 2027. This growth will occur as companies move beyond the experimental phase and integrate AI into their everyday processes. Even a small share of this massive market could benefit AMD greatly. However, the company’s recent results have left something to be desired.
In the third quarter, revenue climbed just 18% year-over-year to reach $6.8 billion, while its gross margin increased by three points to 50%. For perspective, Nvidia’s latest quarter saw a revenue surge of 122% year-over-year to $30 billion, coupled with a gross margin of 75%. The differences in their business models play a significant role in these figures.
Disparities in AMD’s Business Segments
Unlike Nvidia, which derives nearly 90% of its revenue from its data center segment—where it markets its most advanced GPUs for AI applications—AMD has a more diverse revenue stream. In the most recent quarter, around 51% of AMD’s sales came from non-data-center sectors. Some of these segments, such as gaming, have not performed well and have negatively impacted AMD’s overall results during the quarter.
However, a different picture emerges when examining the data center segment alone, which saw a remarkable year-over-year revenue increase of 122%, hitting $3.5 billion. This growth rate compares more favorably with Nvidia’s.
Image source: Getty Images.
AMD’s leadership is focused on sustaining momentum within its data center business by launching new products. In October, the company unveiled its Instinct MI325X line of AI chips, which are intended to compete against Nvidia’s Blackwell chips set for release early next year. Despite past challenges in overcoming Nvidia’s market dominance, AMD’s competitive edge could come from offering more affordable pricing options given Nvidia’s high gross margins of around 75%.
Moreover, AMD plans to introduce new chips annually to keep pace with Nvidia’s rapid advancements, with another product, the Instinct MI400, already scheduled for 2026.
Evaluating AMD as a Millionaire-Maker Stock
The potential for AMD to become a millionaire-maker stock hinges on the successful transition of AI technology from being merely hype to becoming a key economic driver. While it remains uncertain, expectations for accelerated growth over the coming quarters are reasonable as AMD’s data center business continues to expand its sales proportion.
AMD’s forward price-to-earnings ratio stands at 27, appearing quite low for a company that has the potential to achieve triple-digit growth. If it leverages its strengths effectively, it could significantly outperform the market over the next few years. With the right strategies in place, AMD may hold substantial potential to become a long-term millionaire-maker, making its shares an attractive option for investors.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool’s disclosure policy is available for review.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
