AMD is emerging as a formidable competitor in the semiconductor industry, particularly in artificial intelligence (AI) and data centers. The company’s recent innovations and competitive pricing have started to attract some of the industry’s top customers. AMD’s MI300 lineup, launched last year, has received a positive response.
The MI300X is a pure GPU, whereas the MI300A combines GPU and CPU hardware to create an accelerated processing unit (APU). During the second quarter, MI300 sales topped $1 billion for the first time, prompting AMD to increase its full-year forecast to $4.5 billion, up from $4 billion just three months prior. Customers include tech giants such as Microsoft and Meta Platforms.
In anticipation of new market developments, AMD plans to release the MI350 series in 2025, built on its new Compute DNA (CDNA) 4 architecture. This development could deliver up to 35 times more performance than the previous CDNA 3-based chips. In addition to data centers, AMD’s Ryzen AI chips are revolutionizing personal computers by allowing them to process AI workloads on-device, providing a significantly faster user experience.
Earlier this year, AMD reported millions of PCs shipping with Ryzen AI, capturing a 90% market share. Building on this, the new Ryzen AI 300 series for notebook computers has become the industry’s fastest neural processing unit (NPU).
Amd capitalizes on data center growth
Leading notebook manufacturers such as Acer, Asus, and Lenovo are expected to launch over 100 platforms with these chips in the coming quarters. AMD generated $5.8 billion in total revenue during Q2 2024, marking a 9% increase from the previous year. The standout segments were data centers and client products, with data center revenue soaring by 115% year over year to a record $2.8 billion and the client segment growing by 49% to $1.5 billion.
Nevertheless, gaming and embedded businesses showed weaknesses, with gaming revenue declining by 59% due to weaker console demand and the embedded segment falling by 41% due to high inventory levels. AMD has increased its 2024 forecast for data center GPU sales to $4.5 billion, which is minor compared to the projected $1 trillion data center operators will spend over the next five years to meet AI demand. As AMD releases its MI350 series, it could capture a substantial market share.
Even a small slice of this $1 trillion market would significantly boost AMD’s GPU sales. While AMD stock is not cheap, trading at a price-to-earnings (P/E) ratio of 52.5 based on trailing 12-month earnings, it appears more attractive when looking at future earnings. Wall Street predicts AMD will generate $5.51 in earnings per share in 2025, which places the stock at a P/E ratio of 26.4. This suggests that investors who buy now and hold over the next few years could see a substantial return.
With a market cap of $236 billion, AMD is worth less than one-tenth of a significant competitor’s $2.8 trillion valuation. Given its quality chips and growing customer base, AMD stock can potentially deliver high, upside.
