With Advanced Micro Devices (NASDAQ: AMD) shares declining by 53% in the past year, it has lagged behind AI hardware leader Nvidia (NASDAQ: NVDA), which has seen a 25% increase over the same period. This raises the question of whether this dip presents a buying opportunity or a warning for investors to steer clear of the stock. Let’s delve deeper into what the next three years could hold. The Launch of OpenAI’s ChatGPT in late 2022 set off a frenzy in both Wall Street and Silicon Valley. Analysts at McKinsey predicted that this new technology could inject a significant $2.6 trillion to $4.4 trillion into the global economy by enhancing and replacing human labor. Consequently, companies rushed to acquire generative AI hardware to avoid falling behind. AMD stood well-placed to capitalize on this trend. Like Nvidia, the company manufactures AI accelerator chips utilized for training and operating large language models (LLMs). While Nvidia currently dominates the field with an estimated market share ranging from 70% to 95%, the expanding pie presents opportunities for multiple players. Despite being the underdog, AMD has various strategies to compete in the hardware sector. Notably, corporations will be cautious about over-relying on Nvidia for their AI supply chains, as this could expose them to shortages or unfavorable pricing. With Nvidia’s flagship Blackwell chips priced between $30,000 and $40,000 per unit, AMD has a window to offer more competitive pricing. Additionally, AMD provides an open-source software platform called ROCm, which aims to rival Nvidia’s CUDA by assisting developers in programming AMD hardware for AI applications. The AI boom is exerting a tangible impact on AMD’s operations. Fourth-quarter revenue surged by 24% to $7.7 billion, with the data center segment (responsible for AI chip sales) experiencing a remarkable 69% growth to $3.9 billion, representing 51% of total sales. In contrast to Nvidia, which derives approximately 90% of its revenue from the data center segment, AMD maintains a diversified portfolio encompassing CPUs and other PC and laptop hardware. Although non-AI segments currently impede AMD’s overall growth, they provide diversification that could shield the company from potential downturns in AI hardware demand, a mounting risk in the industry. Looking ahead, AMD’s forward price-to-earnings (P/E) ratio of 22 appears undervalued, particularly considering its diversification and exposure to the burgeoning generative AI market. By comparison, the Nasdaq-100 holds a forward estimate of 26, while industry leader Nvidia trades at 25.
There is no certainty that AMD will outperform the market in growth over the next three years. The field of Generative AI is still in its early stages and has not shown consistent profitability. Some major players like Microsoft may be scaling back their involvement. It may be prudent to hold off on investing in AMD stock until more information is available. Take advantage of a potential profitable opportunity that you may have missed out on before.
If you’ve ever felt like you missed the chance to invest in highly successful stocks, then you should pay attention to this. Occasionally, our expert analysts issue a “Double Down” recommendation for companies they believe are poised for significant growth. If you fear you missed the opportunity to invest, now could be the perfect time to act before it’s too late. Consider the impressive results from past recommendations:
– If you invested $1,000 in Nvidia when we issued the “Double Down” alert in 2009, you would have $292,207!
– If you invested $1,000 in Apple when we issued the alert in 2008, you would have $45,326!
– If you invested $1,000 in Netflix when we made the recommendation in 2004, you would have $480,568!
We are currently issuing “Double Down” alerts for three exceptional companies, and this could be a rare opportunity you won’t want to miss. Don’t wait for another chance like this to come around soon.
Note: Stock Advisor returns are as of March 10, 2025. Will Ebiefung does not hold positions in the aforementioned stocks. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool also recommends certain options related to Microsoft. The Motley Fool maintains a disclosure policy.
