Advanced Micro Devices Eyes AI Market with New Chips and Growth Potential

Advanced Micro Devices (NASDAQ: AMD) is recognized for providing top-notch chips across various sectors, including computers, automotive, gaming consoles, and data centers. Current investor interest is largely centered on the company’s data center business, driven by increasing demand for its graphics processing units (GPUs) tailored for artificial intelligence (AI) applications.

Though AMD remains in pursuit of Nvidia in the AI data center sphere, its latest GPUs demonstrate potential to narrow the competitive gap. Moreover, AMD has established itself as a leading supplier of AI chips for personal computers, which may represent the next substantial growth opportunity.

AMD’s Position in the AI Industry

The MI300X data center GPU stands as AMD’s flagship AI chip, gaining traction with major clients such as Microsoft, Meta Platforms, and Oracle. As the company prepares to launch its MI350 series, which utilizes a new architecture called CDNA (Compute DNA) 4, expectations are high.

The upcoming CDNA 4 GPUs, including the MI355X, promise up to 35 times the performance of the MI300X, posing a significant challenge to Nvidia’s Blackwell chips, which are now shipping in substantial volumes. Production of MI355X is set to increase by mid-year, with Oracle placing a significant order for 30,000 units in a multi-billion-dollar deal.

Additionally, AMD is advancing with its MI400 series, slated for launch in 2026. These new chips aim to match the performance of Nvidia’s latest Blackwell Ultra GPUs, indicating AMD’s commitment to closing the performance gap with each new iteration of its GPUs.

In a longer-term view, AMD is adapting to a future where AI workloads transition from data centers to personal computers (PCs). This shift allows users to engage with powerful AI software offline, enhancing convenience and speed. The recent Ryzen AI series of accelerated processing units (APUs) combines a GPU, CPU, and neural processing unit (NPU) in one chip, catering to this growing demand.

Since launching in 2023, millions of computers featuring AMD’s Ryzen AI chips have been shipped by major manufacturers including Microsoft, HP, and Dell. The recent introduction of Ryzen AI Max offers high benchmarks for AI processing and battery life. As more AI workloads transition to PCs, this segment could exceed the importance of AMD’s data center business.

AMD’s Growing Revenue from AI

For the first quarter of 2025, AMD reported total revenue of $7.4 billion, marking a 36% increase year-over-year and surpassing Wall Street’s projections of $7.1 billion. However, essential developments lie within overall business performance.

Data center revenue surged to $3.7 billion during Q1, reflecting a 57% year-on-year increase, driven in part by strong sales of AI GPUs. Additionally, AMD’s client segment, which includes Ryzen AI PC chips, experienced a remarkable 68% revenue rise to $2.3 billion. Collectively, these two AI-focused segments contributed over 81% to AMD’s total revenue, indicating promising growth potential ahead.

Conversely, AMD’s other segments have faced challenges. The gaming division generated revenue of $647 million, down 30% relative to the previous year, yet saw a sequential increase compared to Q4 2024, boosted by the launch of the new Radeon 9070 GPU. As supply continues to catch up with high demand for this chip, further growth from gaming could materialize in Q2 2025.

Meanwhile, AMD’s embedded business reported $823 million in sales, a 3% decline from last year. However, the company anticipates improving demand in key sectors like aerospace could lead to a rebound in growth by the latter half of 2025.

AMD’s Stock Valuation Amid AI Potential

Over the past four quarters, AMD has recorded $3.66 in non-GAAP earnings per share (EPS), resulting in a P/E ratio of 29.5, which is 28% lower than Nvidia’s P/E of 41.1. Consequently, AMD’s stock appears to offer good value compared to its main competitor.

Looking forward, analysts project AMD’s EPS could reach $5.74 by 2026, implying a forward P/E of 18.8. To maintain its current ratio of 29.5, AMD’s stock would need a 57% increase by the end of next year, while it would need to climb 118% to match Nvidia’s present P/E of 41.1.

Major firms like Microsoft, Meta Platforms, Amazon, and Alphabet are expected to collectively invest around $328 billion this year in AI data center infrastructure and chips, excluding expenditures from other players such as Oracle and OpenAI. The potential for growth in this market is substantial, with Nvidia’s CEO forecasting annual AI data center spending could reach $1 trillion by 2028.

As AMD begins to increase shipments of its MI350 chips and looks forward to its MI400 series, the significant 47% decline in its stock has created an opportunity for investors interested in capitalizing on this growth narrative at an attractive valuation.

Considerations Before Investing in AMD

Before making an investment in Advanced Micro Devices, it is crucial to weigh the current market conditions, AMD’s performance metrics, and future growth strategies carefully.