AMD Faces 51% Decline Amid Market Sell-off: Investment Insights
The stock market is currently experiencing a sell-off, with the Nasdaq Composite down over 9% from its recent peak. In this context, Advanced Micro Devices (NASDAQ: AMD) has seen its share price plummet by 51% from its all-time high, a trend that began a year ago.
AMD produces leading-edge chips, including a range of graphics processing units (GPUs) specifically designed for AI development in data centers. Their GPUs are rapidly gaining on Nvidia‘s (NASDAQ: NVDA) industry standards in terms of performance.
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AMD’s data center division recently posted record results, suggesting that there may still be more growth ahead. Given the current 51% drop in AMD’s stock, is this the ideal moment for investors to buy?
Image source: Getty Images.
AI Data Center Spending Expected to Surge in 2025
Nvidia dominated the AI data center market in 2023 with its H100 GPU, maintaining its lead into 2024 with the new H200. Data center providers are eagerly seeking Nvidia’s cutting-edge Blackwell-based GB200 GPU, which boasts capabilities of performing AI inference up to 30 times faster than the H100 in optimal configurations.
Meanwhile, AMD continues to trail, having launched its MI300X GPU, a competitor to H100, only in late 2023. AMD successfully secured contracts with major AI entities like Meta Platforms, Oracle, and Microsoft, some reporting superior performance and cost-efficiency compared to Nvidia’s offerings. Nonetheless, AMD’s next rival release, the MI350, has not yet hit the market.
Currently, AMD is sending out MI350 samples to clients in this quarter, with larger production expected by midyear. However, this delay allows Nvidia to advance significantly, as thousands of GB200 GPUs are already being distributed to top-tier AI developers.
On a positive note, the MI350 utilizes a new GPU architecture, CDNA (Compute DNA) 4, which might deliver up to 35 times more performance than the previous CDNA 3-based MI300X. This innovation could lead the MI350 to not only compete but potentially surpass the GB200.
Faster GPUs enhance the capabilities of AI developers by allowing them to process more data swiftly, which is crucial for the evolution of advanced AI models. Additionally, these GPUs often exhibit better energy efficiency, resulting in significant cost savings on electricity, a major expense for AI development.
Recent forecasts predict that Meta Platforms, Microsoft, Alphabet, and Amazon will collectively invest over $300 billion in data center infrastructure and chips in 2025. This significant spending indicates a strong demand for top-tier chips, positioning the MI350 launch as a pivotal event for AMD.
AMD’s Data Center Revenue Saw Tremendous Growth Last Year
In 2024, AMD tallied total revenue of $25.8 billion, a 14% increase from the previous year. However, underlying trends reveal even more notable changes.
Crucially, AMD’s data center revenue soared to a record $12.6 billion, representing an impressive growth rate of 94%. This, however, still constituted only a fraction of Nvidia’s $115.1 billion data center revenue for fiscal 2025, which concluded on January 26. This disparity underscores AMD’s ongoing challenge, despite its improving product performance.
Despite this, CEO Lisa Su is optimistic that AMD’s GPU sales could reach tens of billions annually in the coming years.
Apart from the data center sector, AMD generated $7 billion in its client segment, which includes the popular Ryzen AI chips for personal computers. This segment experienced a 52% growth from the year before, and Su expects continued growth in 2025, suggesting market share gains against competitors.
The overall 14% revenue increase was limited due to underperformance in AMD’s other segments: gaming and embedded systems. This sluggishness is a key factor behind AMD’s stock decline over the past year.
In 2024, gaming revenue fell by 58%, as customers anticipated the release of the next-generation Radeon 9070 gaming GPU, which has recently launched to favorable reviews. This new offering has potential to rejuvenate AMD’s gaming business this quarter.
For the embedded segment, revenue fell 33% last year due to struggles in essential markets, such as industrial and communications. Despite the unclear outlook, AMD remains hopeful for growth in 2025.
Image source: Advanced Micro Devices.
AMD Stock Appears to be an Attractive Investment
In 2024, AMD generated $3.31 in non-GAAP (Generally Accepted Accounting Principles) earnings per share (EPS). This positions AMD’s stock with a price-to-earnings (P/E) ratio of 30.3, reflecting a 19% discount compared to Nvidia’s current P/E ratio of 37.7. This makes AMD appear to be a compelling value compared to its leading competitor.
Moreover, Wall Street analysts predict that AMD’s EPS could rise to $4.70 this year, potentially leading to a forward P/E ratio of 21.3. To maintain its current P/E ratio of 30.3, AMD’s stock price would need to increase by over 40% in 2025, assuming the analysts’ earnings estimates are accurate.
Taking into account the significant hardware investments underway, attention from investors toward AMD is likely to grow.
AMD Data Center Potential Fuels Investor Interest Amid Market Declines
Advanced Micro Devices (AMD) is heading for another record year in its data center business. This optimism comes despite a 51% decline in AMD’s stock value, which some investors see as an attractive entry point. The company also anticipates recovery in its gaming and embedded segments, contributing positively to its overall earnings.
Given the current market conditions, investors might find this a unique opportunity to consider AMD’s stock. However, as the artificial intelligence (AI) narrative remains in its infancy, it’s advisable for potential investors to adopt a long-term perspective, aiming for at least five years to enhance their chances of achieving positive returns.
Is Now the Right Time to Invest $1,000 in AMD?
Before purchasing shares of Advanced Micro Devices, potential investors should weigh their options:
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board. John Mackey, former CEO of Whole Foods, is also a board member. Suzanne Frey, an executive at Alphabet, sits on the board as well. Anthony Di Pizio holds no interests in the aforementioned stocks. The Motley Fool recommends AMD, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Oracle, and has positions in these stocks. The Motley Fool also recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. For more information, refer to The Motley Fool’s disclosure policy.
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