AMD Faces Slower Start to 2025 Amid AI Chip Hopes
Advanced Micro Devices (NASDAQ: AMD) has seen a 9% drop in stock value since January 2025. Despite this poor start, the company may have promising long-term prospects, particularly with its artificial intelligence (AI) chips.
The introduction of new AI chips last year signals potential improvement. Analysts are considering whether a $25,000 investment today could reach $1 million by retirement.
Image source: Getty Images.
Market Potential for AI Chips
Investors may be doubtful about AMD as it lags behind its competitor Nvidia. However, the extensive growth potential in the AI chip market suggests there’s room for multiple companies to prosper. By 2032, Allied Market Research predicts the AI chip market will reach $383.7 billion, demonstrating a compound annual growth rate of 38.2% since 2023.
AMD’s recent $10 billion partnership with Saudi Arabia’s Humain aims to create a more efficient AI infrastructure. Humain has also partnered with Nvidia, pointing to a competitive strategy in expanding AI technology globally.
In its latest quarterly earnings report (ending March 29), AMD reported sales of $7.4 billion, a 36% increase compared to the prior year and a notable acceleration from 24% revenue growth the previous quarter.
The success of AMD’s Instinct MI325X chips, introduced last year as alternatives to Nvidia’s offerings, indicates positive market reception.
Investment Growth Potential
To turn a $25,000 investment into $1 million, it needs to increase 40-fold. Here’s the annual return needed to reach that goal based on years until retirement:
| Years Until Retirement | Average Return Needed |
|---|---|
| 20 | 20.25% |
| 25 | 15.90% |
| 30 | 13.08% |
| 35 | 11.12% |
Calculations and table by author.
The growth potential from AI technology offers substantial opportunities for AMD. If its AI chips can provide a genuine alternative to Nvidia’s, this company could become a top growth stock. However, it still needs to demonstrate its competitiveness.
Market corrections and potential economic slowdowns present risks that could impact AMD’s growth trajectory. The current performance, despite high demand for AI chips, has been underwhelming this year.
Achieving returns greater than the long-term average of 10% for the S&P 500 is not guaranteed.
Should You Buy AMD Stock?
As a major player in chip design, AMD has the potential to yield significant returns, but achieving 40x growth may take more than 30 years. Investor sentiment remains cautious about the company’s ability to penetrate Nvidia’s market share effectively. Recent improvements in growth could incentivize stock rallies.
While AMD’s current valuation appears high at over 80 times trailing earnings, operating scale could enhance its margins. Analysts project a future trading multiple of just 27 times anticipated profits.
For long-term investors, AMD may offer promising returns, even if it doesn’t reach 40 times initial investment.
Should You Invest $1,000 in AMD?
Before investing, consider that the Motley Fool analyst team identified what they believe are the best stocks to buy now, and AMD is not among them. Their top selections could yield significant returns over the coming years.
Consider this: if you invested $1,000 in Netflix on December 17, 2004, your investment would now be worth $638,985!
Similarly, $1,000 in Nvidia on April 15, 2005, would now amount to $853,108!
An investment in AMD can be appealing for long-term holders, even if it doesn’t deliver extraordinary returns.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
The views expressed herein are the opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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