Can AMD become the Nvidia of 2025?

When it comes to semiconductor stocks, it’s virtually impossible not to think about Nvidia. Over the past two years, the company has become the undisputed leader among chip stocks and, with it, has quickly risen to the forefront among the broader artificial intelligence (AI) companies.

But in my eyes, investors have been so eager to get into the Nvidia effort that they’ve essentially forgotten about other opportunities in the chip space. As 2024 draws to a close, I encourage investors to look around and consider what invisible opportunities may be on the horizon.

Learn why you should invest in Advanced Micro Devices. (AMD -1.96%) It looks especially attractive now. Could AMD become next year’s Nvidia? I think so.

Is Nvidia actually that far ahead of AMD?

On the surface, it should be clear that Nvidia is miles ahead of AMD in the AI ​​marathon. Over the past 12 months, Nvidia generated a whopping $113 billion in revenue. This is almost 5 times more than AMD’s revenue.

However, considering where this revenue is coming from may change how you think about AMD’s trajectory compared to its larger cohort.

This table breaks down the annual revenue growth rates for each of AMD and Nvidia’s data center businesses.

Data source: Investor Relations.

Over the past year, Nvidia’s data center business has slowed significantly. At the same time, AMD’s data center business has evolved from essentially nothing to almost the same growth rate as Nvidia.

Don’t get me wrong — I’m not advocating the idea that Nvidia is in trouble. It’s hard to make a bearish case for a company that is posting more than 100% growth every quarter.

But my broader point is that even though Nvidia is bigger than AMD, that doesn’t necessarily make it a better investment opportunity. Here, we take a closer look at how AMD built such a formidable competitive data center business and explore why 2025 could be a milestone year for the company.

Image source: Getty Images.

Why 2025 is a big year for AMD

Much of the reason Nvidia has seen such significant growth in the data center business is due to the fact that until recently, the company had virtually no competition in the graphics processing unit (GPU) space. With the successful launch of AMD’s MI300 accelerator, Nvidia’s first-mover advantage is finally facing headwinds.

Now, you might counter my argument by claiming that Nvidia’s next-generation Blackwell GPU architecture will help eliminate AMD’s chances of dethroning the chip king. Consider the fact that many of Nvidia’s own customers, including Microsoft and Meta Platforms, also use AMD’s MI300 GPUs.

Plus, these big tech companies, along with Alphabet and Amazon (both of which are also Nvidia customers), are investing heavily in developing their own chips in an effort to transition away from legacy systems. Don’t forget. Overreliance on Nvidia.

Finally, keep in mind that AMD is also developing a successor GPU to MI300 called MI325X, expected to launch in 2025. Additionally, the company’s MI400 architecture is targeted for launch in 2026.

What’s my point? I don’t think Nvidia’s Blackwell launch poses much of a threat to AMD at all. Given that AMD is innovating at an unprecedented pace and investment in AI infrastructure is expected to increase in the coming years, the launch of MI325X and MI400 could help AMD gradually gain market share from Nvidia. I see this as a catalyst that will help us do that.

Is AMD stock worth buying now?

As of this writing, AMD trades at a forward price/earnings ratio (P/E) of 29 times. By comparison, Nvidia’s forward P/E ratio is currently 34x.

With the release of Blackwell just around the corner, I can’t help but feel that my expectations for Nvidia are increasing even more. If the company fails to meet investors’ expectations, there is a strong possibility that a panic-induced drop in the stock price will occur.

On the other hand, given that AMD’s valuation is heavily discounted compared to Nvidia, I wonder if investors are missing out on the company’s new GPU lineup over the next two years. The existing footprint of MI300, combined with the launch of MI325X next year, which will compete head-to-head with Blackwell, should allow AMD to continue making headway against Nvidia. In particular, AMD is already showing its dominance with its own customer base. I’m looking for an alternative GPU provider.

I think now is a good time to buy AMD stock and prepare to hold firm.