Advanced Micro Devices could disrupt Nvidia’s dominance in the data center chip market.
Nvidia is a leading supplier of data center graphics processing units (GPUs) used to develop artificial intelligence (AI) models. As of this writing, the company’s stock has soared 187% year-to-date. That’s because the company has delivered impressive revenue growth as demand for chips continues to outstrip supply.
However, Nvidia CEO Jensen Huang believes that data center operators will spend $1 trillion over the next four years on infrastructure upgrades to meet the needs of AI developers, and this opportunity presents multiple opportunities. large enough to support GPU suppliers. advanced micro device (AMD 1.42%) recently launched its own AI GPU series and has already won over some of Nvidia’s biggest customers.
Here’s why AMD stock could be a great buy in the new year, even for investors who already own Nvidia.
Chasing Nvidia in the data center
Nvidia had an estimated 98% share of the data center GPU market in 2023, as there was virtually no competition for its flagship H100 chip. However, AMD launched its MI300X GPU in December and quickly attracted many of Nvidia’s major customers, including Microsoft, Meta Platform, and Oracle.
According to AMD, many of these data center operators are seeing better performance and lower cost of ownership with MI300X over H100, and this is an attempt by AMD to gain market share. This is a good omen for But Nvidia isn’t standing still. The H200, which is twice as powerful as the H100, is already on the market, and we’ve just started shipping new Blackwell GPUs.
The Blackwell-based GB200 NVL72 system can run AI inference 30 times faster than a comparable H100 system, so AMD has a big mountain to climb to catch up. The company just started shipping MI325X to customers, and it’s a good start, offering 20% better inference performance than H200.
However, investors are already eyeing AMD’s MI350 series, which is expected to be available to customers in late 2025. It uses the company’s new Compute DNA (CDNA) 4 architecture, which delivers a 35x performance increase compared to the CDNA 3 chip below. MI300. In other words, it will be a formidable competitor to Nvidia’s Blackwell chip, even if its release is delayed by more than six months.
AI developers typically pay by the minute for computing power, so faster chips can lead to significant cost savings. Therefore, performance will determine which chip giant gains market share. That’s why Nvidia and AMD are fighting so hard to release faster chips every 6 to 12 months.
AI opportunities for AMD extend beyond the data center
Data centers will always play a critical role in training AI models and supporting AI inference, but the chips in smartphones and computers are becoming powerful enough to run some AI workloads on-device. This speeds up the user experience, for example, by eliminating the need to send chatbot queries to a data center before crafting a response.
AMD dominates the market for AI chips used in personal computers (PCs). The Ryzen AI 300 series delivers industry-leading performance across the GPU, central processor (CPU), and new neural processor (NPU), making it easy for users to run AI chatbot applications.
In fact, the Ryzen AI 300 series is three times more powerful than AMD’s previous generation chips when it comes to AI performance. They’re already in Microsoft’s new Copilot+ PCs, and manufacturers like Lenovo and HP plan to triple the number of Ryzen AI devices they offer by the end of 2024. AMD expects more than 100 computing platforms will use these chips in commercial environments next year. .
AMD’s AI revenue is soaring
AMD recorded total revenue of $6.8 billion in the third quarter of 2024 (ending September 28), an 18% increase year-over-year. However, AI-related segments have grown much faster.
The company’s data center revenue surged 122% to a record $3.5 billion, driven by GPU sales. AMD CEO Lisa Su now estimates that GPU revenue alone could reach $5 billion by 2024, more than 150% higher than her initial estimate of $2 billion. He says it has exceeded that.
AMD’s client division revenue increased 29% to $1.9 billion. Given that this is the home of Ryzen AI chips and Su believes the AI PC cycle is still in its early stages, investors should expect strong growth in the sector throughout 2025.
The reason AMD’s total revenue growth did not exceed 18% was because the company’s gaming division’s sales were down 69% year-over-year. With demand for flagship consoles like Microsoft’s Xbox and Sony’s PlayStation 5 sluggish, PC gamers are looking forward to a new generation of AMD GPUs shipping in 2025.
Image source: Getty Images.
Wall Street is bullish on AMD stock
The Wall Street Journal tracks 54 analysts covering AMD stock, with 37 giving the company the highest possible Buy rating. A further 7 people are in the overweight (bullish) camp and 10 recommend a hold. No analysts recommend selling.
The average price target for the next 12-18 months is $185.77, implying a 31% upside for the stock as of this writing. However, the street-high price target of $250 suggests AMD stock could rise 76%.
According to Yahoo!, Wall Street’s consensus forecast for 2025 is that AMD’s earnings per share (EPS) could rise 54% to $5.14, and the company’s stock’s expected price-to-earnings ratio (P/E) is It is said that there is a possibility that it will be 27.6. The Street High target may actually be realistic, as the stock would need to jump 71% next year to trade in line with its current P/E of 47.3 (based on the company’s trailing 12-month EPS of $3) .
AMD’s forward P/E ratio is also much lower than Nvidia’s forward P/E ratio of 31.3 times. Nvidia is currently growing revenue and profits faster than AMD, and still has a clear lead in the data center GPU space, so it deserves a premium rating.
However, Nvidia has so much market share that it will only shrink in the future, while AMD is just starting to enter the space, so the best growth may still be yet to come. . Additionally, as the leader in the AI PC chip segment, AMD has a front row seat to what could be the next big growth driver for the AI industry.
So AMD stock could be a great buy for any investor as we enter 2025. But given that the company is a leading candidate to take away some of Nvidia’s market share in the data center industry, investors who own Nvidia stock can hedge some of that risk by: Possibly. Acquired by AMD.
