Summary
AMD is significantly undervalued, despite narrowing the technology gap with Nvidia and raising AI revenue guidance throughout 2024.
AMD's potential market share in the AI GPU space could grow, driven by new product releases and partnerships with tech giants like Microsoft and Meta.
Technical indicators suggest AMD is oversold, presenting a buying opportunity with a potential 12-month price target of $250, approximately 100% above its current price.
AMD's robust EPS growth potential and favorable forward P/E ratios make it a top stock to own in 2025, despite execution and competition risks.
I am Victor Dergunov, an investor and financial writer with 20+ years experience. I run the investing group The Financial Prophet where I cover all market sectors and share strategies for a well-diversified portfolio.
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Is there a cheaper AI stock than AMD (NASDAQ:AMD) right now? Because if there is, I can't think of one. While Broadcom (AVGO), Nvidia (NVDA), and other AI chip darlings have provided excellent returns in 2024, AMD is down by about 15% this year.
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We see a stark underperformance from AMD, especially when comparing it to Nvidia, AMD's prime competitor in the ultra-lucrative AI GPU space. The problem for AMD is that Nvidia had a substantial head start in the data center AI segment, and controlled a staggering 98% of the data center AI GPU market to start 2024.
However, despite this huge gap at the beginning of the year, AMD has consistently raised its AI revenue guidance throughout 2024, raising AI FY guidance again to $5B in its latest quarter. Granted, Nvidia's AI data center related revenues could be around $105B for fiscal 2025, which gives it about a 95% market share advantage over AMD's approximate 5%.
AMD Could Gain More Market Share
While it may appear insignificant, 5% is substantially better than 2%, but more importantly, we should focus on the future, instead of dwelling on the past. AMD recently introduced its MI325X AI accelerator and plans to release the next generation MI350 series accelerators, designed to go head to head with Nvidia's new Blackwell AI project.
It's undeniable that AMD lags Nvidia in data center AI, but it is clearly catching up, the technology gap seems to be narrowing, and AMD may not be that far behind Nvidia anymore. AMD has announced data center AI deals with tech giants like Microsoft (MSFT), Oracle (ORCL), Meta (META), OpenAI, and others, illustrating its solid spot as a serious contender in the ultra-lucrative AI data center space.
This year's AMD data center AI revenue should be around $5B, and some analysts anticipate an increase to $9-$10B next year in this space. This dynamic represents around an 80-100% YoY sales increase, which is an excellent outlook for AMD.
There are valid reasons for some companies to choose AMD over Nvidia, and it is unlikely for Nvidia to maintain such an immense piece of the massive AI data center accelerator market longer term.
Without getting too deep into the technical specifics, several reasons why companies may go with AMD over Nvidia include lower pricing (more bang for the buck), its open-source ROCm platform, energy efficiency, memory bandwidth, increased flexibility, and more.
The Market Is Big Enough For Multiple Players
GPU market size projections
The GPU market is expected to increase to about $440 billion by 2030, suggesting an approximate CAGR of 34%, implying there is enormous growth potential ahead for AMD. Assuming a 12-15% share in this market, AMD's sales could be about $53-$66B by 2030 in this segment alone. If AMD can carve out a more significant share of the market, its sales could skyrocket to $70-$80B by 2030 in a more bullish case.
Also, please consider that I am merely estimating AMD's potential GPU revenues. AMD should continue benefiting from its market-leading position in the CPU space and other developing segments.
Technically, AMD Is Now A Gift
AMD
AMD had a massive run-up after its bear market low of around $55. I pounded the table on AMD around $55-$60, and I am pounding the table on the sock now. Since AMD's blowoff top earlier this year, the stock has been in a downturn for about nine months. Also, AMD has declined by 50% from its $230 peak to its recent low of around $116.
This has been a drastic correction, and if we look closely, we see that AMD recently concluded the "fifth wave." (from the top in March to its recent bottom). Recently, AMD became more oversold than it has been since the bear market bottom, hitting an RSI well below 30, and the CCI dropped to about -300, its lowest level in over five years.
Many technical indicators suggest that AMD has a high probability of bottoming around here, and a sustainable recovery will likely begin. On top of the highly favorable technical conditions, AMD is simply dirt cheap.
AMD Is Ridiculously Cheap
EPS vs. estimates
AMD has kept up with estimates, and there is a high probability it will continue meeting consensus estimates, or it could outperform. The consensus 2025 EPS estimate is around $5, but the range is $4-$7, and $5 may be a lowball figure here. AMD could earn $5.50-$6 in 2025, in my view. Also, it's essentially 2025 now, so we should be looking ahead.
Substantial EPS Growth Likely To Continue
EPS growth
The consensus EPS estimate for 2026 is about $7, but the higher-end EPS estimates range to $10. Due to AMD's robust potential in AI, GPUs, and other areas, I believe $8 is more realistic in a base case, and AMD could achieve $9 in EPS in 2026 in a more bullish scenario. Considering that AMD is around $125 here, $8 in EPS equates to a forward P/E ratio of 15.6, and if AMD can earn $9 in 2026, its forward P/E ratio may only be about 13.9, dirt cheap.
I am using relatively modest to slightly bullish sales and earnings growth projections. I am also factoring in a mild multiple expansion to 29-32. This dynamic suggests that AMD's stock is considerably undervalued now and has a high probability of moving substantially higher as we advance. Due to AMD's likelihood to surprise the market to the upside, it is one of my top stocks to own in 2025, with a 12-month price target of $250, approximately 100% above its recent price range.
Risks To AMD
AMD faces execution risks as it must execute flawlessly to keep up with Nvidia. There is the constant threat of competition, not only from Nvidia, but also from Intel (INTC), Broadcom, and other companies present in CPUs, GPUs, and the accelerator space. There are also risks related to macroeconomic conditions, geopolitics, potential tariffs, and more. Investors should consider these and other risks before investing in AMD's stock.
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