AMD’s Growth Potential: Navigating Challenges in the Semiconductor Market
Advanced Micro Devices (NASDAQ: AMD) has transformed into a leading player in the semiconductor industry over the past decade.
Guided by CEO Lisa Su, the company has shifted from a long-standing underperformer to a competitive fabless chip designer. AMD has steadily increased its market share against Intel in the PC segment and has become a noteworthy manufacturer of artificial intelligence (AI) GPUs within data centers.
Over the past ten years, AMD’s stock has surged over 4,000%. However, the recent trend shows a downturn, with a nearly 40% drop in stock value over the past year due to slower-than-expected growth in its AI sector. This decline presents an opportunity for recovery, as the stock is now perceived as undervalued, especially in light of its recent earnings report.
Despite some investor apprehension regarding AMD’s first-quarter earnings—and a sequential revenue decline in its data center segment—positive signs indicate that the company can bounce back. Let’s analyze the data to understand what it would take for AMD’s stock to double in the next two years.
Image source: Getty Images.
AMD’s Positive Revenue Growth
In the first quarter, AMD reported its most substantial revenue growth since 2022, fueled by its acquisition of Xilinx. Revenue climbed 36% year-over-year to $7.44 billion, surpassing the consensus estimate of $7.12 billion. This growth was driven by robust performance in both data center and client segments.
Data center revenue surged 57% to $3.7 billion, primarily due to the success of its EPYC CPU and Instinct GPU. Meanwhile, client revenue, which includes PCs, rose 68% to $2.3 billion, propelled by heightened demand for its Zen 5 AMD Ryzen processor.
Additionally, AMD finalized its acquisition of ZT Systems, a server manufacturer, positioning itself to tap into a market for AI data center accelerators projected to reach $500 billion by 2028.
Looking ahead, the company has provided promising second-quarter guidance, projecting revenue around $7.4 billion, which accounts for an expected $1.5 billion revenue loss due to new export restrictions on certain AI chips for China. This forecast is a 27% increase from the same quarter last year, compared to the consensus estimate of $7.24 billion.
Strategic Market Position
While Nvidia remains the dominant player in the data center GPU market, AMD stands as a significant competitor. This competition benefits various industry stakeholders, particularly GPU buyers, as it fosters innovation and price competitiveness.
During its first-quarter report, AMD stated that Oracle plans to deploy a large-scale cluster using MI355x accelerators and 5th Gen EPYC processors later this year. Furthermore, Amazon recently acquired 822,234 shares of AMD stock, revealing a deepening partnership as Amazon leverages AMD chips across its products.
Prospects for Stock Value Doubling
AMD is well-positioned to benefit from trends in AI and data centers. Even amidst a potential recession, major players are likely to continue investing in advanced technology as they pursue artificial general intelligence (AGI).
Upcoming launches of new Instinct accelerators like the MI350 and MI400, along with AMD’s latest results, suggest it will remain a competitive force in this space, even while trailing behind Nvidia.
A larger share of the client segment is also within reach for AMD, especially as Intel faces an 8% decline in the same sector, reporting $7.6 billion in client revenue. As Intel grapples with layoffs and focuses on deploying its 18A process, regaining growth in this segment may not be a priority.
At its current valuation, AMD stock appears to be an attractive investment opportunity. The stock trades at a forward P/E of 26, and based on 2026 estimates, it trades at a P/E of just 17. If its recent growth trajectory continues, these estimates could rise, pushing the stock price significantly upward.
Given this context, returning to its all-time high of $211.38, representing a potential gain of 111% over the next two years, seems achievable for AMD.
Considering an Investment in AMD?
Before making any decisions regarding AMD stock, it is essential to evaluate the broader market landscape:
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*Returns as of May 5, 2025
Jeremy Bowman has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Oracle.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
