Assessing the Future of Advanced Micro Devices Amid AI Growth

One of the more intriguing stocks following the recent market sell-off is Advanced Micro Devices (NASDAQ: AMD). As of this writing, shares are down about 40% over the past year, despite the chipmaker’s significant revenue growth driven by demand for artificial intelligence (AI).

However, investors are left to ponder: Can AMD’s stock recover and prove to be a sound investment?

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Strong AI Growth and Market Position

When examining AMD, many investors highlight its position as the No. 2 player in graphics processing units (GPUs), trailing behind industry leader Nvidia. Given Nvidia’s notable successes, it is tempting to speculate that AMD could eventually increase its market share and enhance competition.

Currently, AMD holds around a 10% market share in a large and expanding GPU market, where GPUs play a crucial role in training AI models and performing inference. In contrast, Nvidia commands nearly 90% of this market. AMD has attempted to narrow this gap by enhancing its chip designs and software; however, its software remains a significant hurdle.

Tests conducted by semiconductor research firm SemiAnalysis in December revealed that AMD’s GPUs were “unusable out of the box,” plagued by software bugs that necessitated considerable support from the company’s engineers to function properly.

AMD introduced its ROCm software platform about a decade after Nvidia launched its CUDA platform, aiming to help developers maximize the utility of its GPUs beyond traditional graphics rendering. Since then, AMD has struggled to catch up, often relying on open-source libraries that were adapted from Nvidia’s CUDA technology. This reliance complicates their ability to compete effectively in terms of usability, limiting AMD’s GPUs primarily to defined AI inference tasks.

Despite these challenges, AMD continues to thrive in the rapidly growing AI infrastructure market. The company has reported positive growth in inference applications and maintains relevance as an alternative to Nvidia, which faces capacity constraints. However, significant market share erosion from Nvidia remains improbable.

Strength in CPUs and Market Performance

AMD has shown impressive performance in its central processing unit (CPU) sector. While GPUs offer the processing power, CPUs act as the “brains,” orchestrating how various PC components work together. AMD has recently claimed over 50% market share in the CPU data center segment, marking victories among hyperscalers—firms that operate extensive data centers. Although this sector is smaller than the GPU market, it is expanding rapidly as AI infrastructure spending surges.

In its latest quarterly report, AMD’s data center revenue skyrocketed by 69% year over year, reaching $3.9 billion. For the entire year, this segment surged by 94% to total $12.6 billion.

Additionally, AMD has gained traction in the personal computer (PC) market, boasting over 70% market share on several online platforms, including Amazon, Newegg, and MindFactory. This year, AMD aims to grow its PC business by a mid-single-digit percentage, while the gaming segment remains weak due to the lack of recent console refreshes.

Image source: Getty Images

Is Now the Right Time to Buy AMD Stock?

The recent drop in AMD’s share price has resulted in a forward price-to-earnings (P/E) ratio of 22.5 based on analyst projections for 2025. The company foresees a 30% revenue growth in the first quarter, with analysts anticipating a 23% increase for the year.

AMD PE ratio (forward) data by YCharts.

This valuation is appealing for a semiconductor stock that maintains healthy growth metrics.

Investors hoping for AMD to capture substantial market share from Nvidia may face disappointment. Nonetheless, AMD is primed for continued growth in data centers as AI infrastructure spending boosts the chip market overall. The company is also well-positioned to retain GPU business, which could help keep Nvidia’s prices in check, while thriving in the CPU segment.

Considering its valuation and potential, this stock presents a buying opportunity at present levels, with the caveat that AMD likely won’t mirror Nvidia’s extraordinary success.

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*Stock Advisor returns as of March 24, 2025.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends Advanced Micro Devices, Amazon, and Nvidia. 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.