AMD Faces Uphill Battle Amid Declining Stock Performance

Advanced Micro Devices (NASDAQ: AMD) has struggled in the stock market over the past year. Investors had high hopes for AMD to gain traction against rival Nvidia in the crucial data center market, but that potential hasn’t materialized. In addition, the broader performance of AMD’s business has been lackluster, contributing to the Stock‘s significant decline.

Since reaching its peak last March, AMD’s stock has dropped over 50%, contrasting sharply with most other stocks that have seen gains. Conversely, if investors had chosen Nvidia, they would be enjoying over a 50% increase. This stark performance disparity raises the question: can AMD successfully turn things around? A decline of this magnitude may present a buying opportunity for those looking to capitalize on potential recovery.

AMD’s Struggles Against Nvidia in Data Centers

Nvidia has honed its focus on graphics processing units (GPUs), whereas AMD offers a wider range of products. Although AMD has competitive offerings, its performance in the data center market has lagged behind Nvidia. Originally, analysts believed that AMD could capture market share from Nvidia as the AI focus shifted from training to inference; however, this takeover has not happened.

In AMD’s fiscal fourth quarter, which ended on December 28, data center revenue surged 69% year over year to $3.86 billion. While this figure appears robust, it pales in comparison to Nvidia’s data center revenue, which soared by 93% to $35.6 billion during its fiscal Q4 (ended January 26). Nvidia’s revenue is nearly ten times greater than AMD’s in this critical area.

This shortfall is a major component of AMD’s declining stock valuation, compounded by underperformance in its other business segments. The only bright spot for AMD was client revenue, which saw a 58% increase year over year and includes CPUs and GPUs designed for consumer laptops and PCs. Although this market segment remains vital, it is increasingly commoditized, limiting profit margins as performance differentiation narrows.

Other areas of AMD’s business revealed challenges. Gaming revenue, derived from GPUs catered to PC and console markets, fell 59% year over year, and embedded processors, intended for specific, energy-efficient applications, experienced a 13% downturn. Overall, AMD’s revenue growth registered at 24% year over year, which, while not dismal, failed to meet investor expectations, contributing to its unpopularity on Wall Street.

Attractive Valuation Grounds for Future Investment

AMD’s finances have experienced some unusual one-off charges in the past year, making its trailing price-to-earnings (P/E) ratio less insightful. Consequently, analyzing the forward P/E ratio offers a clearer perspective on AMD’s valuation, which has notably declined recently.

AMD PE Ratio (Forward) data by YCharts

Currently, AMD trade at 21.2 times forward earnings, a fairly reasonable value compared to the broader market, which averages 21.6 times forward earnings. Analysts predict revenue growth of 23% in 2025 and 21% in 2026 for AMD—a faster pace than the broader market—yet the stock continues to trade at a discount. This presents a compelling opportunity for investors, as AMD, while unlikely to surpass Nvidia, possesses a solid business foundation of its own.

By looking beyond competition with Nvidia, AMD reveals enough inherent value to suggest it may be a viable stock pick with potential for recovery throughout 2025, approaching a more appropriate valuation level based on its growth trajectory.

Seize This Unique Opportunity for Potential Profits

Have you ever felt you missed the chance to invest in successful stocks? If so, you need to pay attention right now.

On rare occasions, our expert analysts issue a strong “Double Down” Stock recommendation for companies poised for impressive growth. If you’re concerned about missing your opportunity to invest in AMD, now could be an ideal time to enter before the market shifts significantly. Consider the numbers:

• Nvidia: a $1,000 investment from our double down in 2009 would have grown to $286,710!*
• Apple: a $1,000 investment from our double down in 2008 would have grown to $44,617!*
• Netflix: a $1,000 investment from our double down in 2004 would have grown to $488,792!*

Currently, we are issuing “Double Down” alerts for three exceptional companies, and this opportunity may not come around again soon.

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*Stock Advisor returns as of March 3, 2025

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices 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.