The significant decline in demand for PCs post the peak sales during the COVID-19 pandemic years has impacted AMD’s financials. The surplus inventory forced AMD to write down, resulting in a notable reduction in earnings. Despite this setback, the company’s data center division maintained a strong performance by securing more server CPU market share from Intel.
However, the slowdown in sales of Sony and Microsoft gaming consoles, which are powered by AMD’s semi-custom processors, led to decreased orders from these tech giants. Furthermore, with AMD lagging significantly behind Nvidia in the gaming graphics cards market, holding only a 10% share, the company’s gaming business has faced challenges.
The performance of AMD’s diverse business segments has influenced its stock performance negatively over the past five years. Nonetheless, there is optimism as all discussed segments are predicted to experience substantial growth in the upcoming five years, potentially driving an increase in AMD’s stock value.
In the next five years, AMD’s success will hinge on the performance of key segments like gaming, data centers, and PCs, all of which are forecasted to witness steady growth due to various drivers. For instance, the gaming segment is expected to benefit from the launch of new gaming consoles by Microsoft and Sony, as the current generation nears the end of its lifecycle.
Moreover, AMD is making strides in the PC market, with client segment revenue surging by 52% in 2024 to a record $7.1 billion, primarily driven by the strong demand for AMD Ryzen processors. The future of the PC market looks promising with the emergence of generative AI, indicating potential growth opportunities for AMD.
With the AI PC market revenue projected to increase nearly fivefold between 2024 and 2030, AMD stands to benefit from its growing market share in PC processors. The company ended 2024 with a 25% share of the client CPU market, showcasing improvements in pricing power and market share growth compared to the previous year.
The trajectory appears positive for AMD’s gaming and PC segments over the next five years, while the data center business is also showing signs of improvement, albeit trailing Nvidia in the market.
In the AI GPU market, AMD experienced a significant surge in data center revenue last year, nearly doubling to a remarkable $12.6 billion. This growth was primarily fueled by robust sales of both its server CPUs and GPUs, with data center GPU sales alone reaching a minimum of $5 billion in 2024. Looking ahead, AMD projects that its data center GPU segment could expand to “tens of billions” in the coming years. Even if it secures a modest share of this market, AMD is poised to generate substantial revenue from data center GPUs in the long term.
The outlook for AMD appears promising in terms of earnings growth over the next five years. With a price/earnings-to-growth ratio (PEG ratio) of just 0.42 based on its projected five-year earnings growth, as reported by Yahoo! Finance, the stock seems undervalued relative to its growth potential. A PEG ratio below 1 indicates that a stock is likely undervalued considering its anticipated growth, and AMD is trading well below this benchmark. Therefore, investors seeking a growth stock at an attractive valuation may find AMD a compelling addition to their portfolios, with strong potential for long-term upside.
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*Stock Advisor returns as of February 28, 2025
Harsh Chauhan does not hold positions in any of the mentioned stocks. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intel, Microsoft, and Nvidia. Additionally, The Motley Fool recommends specific options related to these companies, as disclosed in its policy.
