History seems to be repeating itself for Advanced Micro Devices (NASDAQ: AMD). In the early 2000s, it was said that Intel let AMD survive only so that Intel wouldn’t be considered a monopoly in the PC processor market. Over the past decade, AMD eventually fought back and now compares favorably to Intel, but that hasn’t done much for shareholders lately.
Now, AMD looks to be losing the artificial intelligence (AI) race to Nvidia. AMD is only seen as an alternative, rather than the go-to provider for graphics processing units (GPUs) to power these massive workloads. AMD’s failure to capitalize on this market (so far) has sunk its stock nearly 50% from its all-time high established in March 2024.
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However, it’s not like AMD has completely missed out on all this growth, and many investors may wonder if this is their opportunity to scoop up shares on the cheap. Let’s find out.
Its divisions are either booming or slumping
AMD has multiple product lines in its business, each with differing levels of success in the most recent quarter. Its divisions are:
-
Data Center, which includes GPUs and other hardware AMD sells to outfit data centers. This division is the primary beneficiary of the AI race.
-
Client, which includes OEM hardware that AMD places in other companies’ laptops and PCs.
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Gaming, which includes producing GPUs for gaming consoles and aftermarket upgrades.
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Embedded, which includes embedded processors that were added to the business from its Xilinx acquisition.
The results from these four divisions were an absolute mixed bag, with some divisions rising strongly in the fourth quarter while others sank.
|
Division |
Q4 Revenue (in millions) |
Revenue Growth (YOY) |
Operating Income Growth (YOY) |
|---|---|---|---|
|
Data Center |
$3,860 |
69% |
74% |
|
Client |
$2,310 |
58% |
711% |
|
Gaming |
$563 |
(59%) |
(78%) |
|
Embedded |
$923 |
(13% |
(21%) |
Data source: AMD. Note: YOY = Year over Year.
At first glance, you are probably thinking: AMD isn’t doing that badly at growing its data center division — it rose 69% year over year! However, its $3.86 billion in revenue was far from what analysts expected: $4.14 billion. Furthermore, AMD’s chief rival, Nvidia, saw data center sales of $30.8 billion, up 112% during its fiscal 2025’s third-quarter (ended Oct. 27, 2024).
That’s not a perfect comparison, since Nvidia’s Q3 encompassed only one month of AMD’s Q4. We’ll have to wait and see on Feb. 26 (when Nvidia reports Q4 2025 results) what Nvidia’s growth rates are to get a better idea of how “bad” AMD’s quarter was. However, Nvidia is unlikely to post growth rates as slow as AMD. Plus, its division is nearly 10 times the size of AMD’s, so it’s clear that AMD isn’t making up any ground in this race.
While the client division saw strong growth, neither of AMD’s other weak divisions was able to bolster revenue growth overall. Companywide in Q4, AMD’s revenue rose 24% year over year, but its margins suffered, with net income decreasing 28% year over year. AMD’s profit margin recovered from a dip in 2023, but it still hasn’t reached 2021 levels.
AMD Profit Margin data by YCharts.
Investors need to be careful comparing AMD’s current margins to those attained in 2021. AMD had a massive boost from the COVID-19 computer buying spree, which allowed AMD to charge a premium for its products. As a result, its current profit margin may be a better indicator of future levels.
AMD is valued at a slight premium to the broader market
With this in mind, is AMD’s valuation at a point where it looks like an attractive buy? Despite tumbling nearly 50% from its highs, AMD’s stock isn’t as cheap as you’d think.
AMD PE Ratio data by YCharts.
The stock now trades for 23.9 times forward earnings, which is slightly higher than the broader market (the S&P 500 trades for 22.5 times forward earnings). This means that AMD is viewed as a slightly better-than-market stock, which I think is probably a fair assessment.
AMD’s growth rate in 2025 and 2026 is projected to be quite strong, with 23% and 21% revenue growth expected from Wall Street analysts in 2025 and 2026, respectively. That’s a quicker pace than the one at which the market grows, and if AMD can slightly improve its profit margins alongside that solid growth, it could easily become a market-beating stock.
While AMD won’t be the next Nvidia, investors can confidently take a position at this price point and expect market-beating returns moving forward.
Should you invest $1,000 in Advanced Micro Devices right now?
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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.