In 2024, AMD struggled to keep up with NVIDIA (NVDA) and Broadcom (AVGO) in the fast-growing AI hardware market. Now, as we step into 2025, AMD has a more attractive valuation and strong growth prospects.
AMD’s Struggles Against NVIDIA
AMD’s stock has been under pressure because NVIDIA is way ahead in the AI hardware race. NVIDIA isn’t just a hardware leader—it’s also unmatched in the software ecosystem that powers its chips. Big companies like NVIDIA because its CUDA software makes things simple and fast for AI developers. CUDA is so well-known and widely used that many engineers are trained to work with it, which further strengthens NVIDIA’s dominance.
On the other hand, AMD’s software, ROCm, still lags. It often requires extra work to get up and running, making NVIDIA the easier choice for companies. Meanwhile, Broadcom has made huge gains by creating custom AI chips for Google’s Tensor Processing Unit (TPU). Despite all this, AMD isn’t out of the race. Its hardware specs are competitive with NVIDIA’s, and the company has the talent and determination to carve out its place.
AMD’s Data Center Growth Is the Key
Even though AMD is behind NVIDIA and Broadcom, its data center business is booming. In fact, data center sales are growing so quickly that they’re set to dominate AMD’s revenue. For the fourth quarter of 2024, AMD expects data center sales to reach $5 billion out of total revenue of $7.2-$7.8 billion. That’s a 40% jump from the previous quarter! To put this in perspective, AMD’s total data center revenue for 2023 was $6.8 billion. By the end of 2024, it’s expected to double to $13.6 billion. AMD will announce its fourth-quarter 2024 earnings results on February 4, 2025.
AMD’s growth isn’t just about the short term. The company is positioned for even greater success in 2025, with its data center business expected to grow further. AMD’s MI300X chip, which competes with NVIDIA’s Hopper lineup, has better on-paper performance in some areas, like memory bandwidth. However, AMD still has to close the software gap to fully challenge NVIDIA.
Opportunities Beyond AI Data Centers
AMD is also expanding in other areas. It has made significant progress in gaming GPUs and server CPUs, competing with giants like Intel and NVIDIA. Big tech companies are interested in working with AMD to avoid relying too much on NVIDIA. By supporting both AMD and NVIDIA hardware, companies can keep their options open.
As AI technology spreads beyond data centers into everyday devices, AMD has a good chance to capture more market share. Its flexible and cost-effective chip designs, like chiplets, make it well-suited for the next wave of AI innovation. AMD’s partnerships with Microsoft and Meta further boost its growth potential.
Why AMD Is a Good Buy Now
Investing in AMD now offers a chance to benefit from its undervaluation. At a $200 billion market cap, AMD’s forward price-to-earnings growth (PEG) ratio is just 0.87, which is considered excellent compared to its semiconductor peers. The company has reported multiple quarters of triple-digit year-over-year growth in its data center segment, and this momentum is expected to continue.
While AMD still has work to do to catch up with NVIDIA and Broadcom, it’s clearly making significant progress. With strong growth prospects, a competitive edge in hardware, and increasing demand for its products, AMD is poised for long-term success.
Final Thoughts
If you’re looking for a stock with solid growth potential and a reasonable price, AMD is worth considering. Its challenges in the AI hardware market are real, but so are its opportunities. As AMD continues to expand its presence in data centers and other AI markets, it’s likely to deliver strong returns for investors.