As we reflect on the past year, it’s clear that some constants have held true. For me, this includes my struggle to stay hydrated with a grueling workout schedule, Nvidia’s (NVDA) stock price consistently going up, and AMD’s (AMD) stock price also trending upward – until 2024.
The Year in Review: A Tale of Two Stocks
In 2024, Nvidia’s stock price surged by an astonishing 171%, while Broadcom (AVGO) rose 107% and the Nasdaq Composite (^IXIC) tacked on 28%. However, AMD’s stock price finished the year down a staggering 17%.
The Rivalry Heats Up
As a fan of AMD, it’s disheartening to see their stock performance lag behind Nvidia. But what’s more concerning is that this gap seems to be driven by perception rather than actual fundamentals.
The Nvidia Effect: A Tale of Two AI Players
AMD’s struggles can be attributed in part to the Nvidia effect – the perception that Nvidia’s product pipeline, led by the new Blackwell chip, is one year ahead of AMD in terms of artificial intelligence performance. This gap is evident in the Street’s view, with some analysts suggesting that Nvidia is dominating the AI arms race.
The Cloud Player Effect: A Shift in Industry Dynamics
Another factor contributing to AMD’s struggles is the cloud player effect. Major cloud players like Amazon (AMZN) and Google (GOOG) are increasingly opting for custom chips from Marvell (MRVL), Broadcom, or Nvidia instead of AMD. This shift in industry dynamics poses a significant threat to AMD’s market share.
The PC Sales Outlook: A Concerning Trend
The outlook for the PC market in 2025 remains subdued at best, putting risk to AMD’s estimates. Weak PC sales could lead to a correction in the first half of 2025, further exacerbating AMD’s challenges.
The Opportunity Amidst Adversity
While sentiment around AMD’s stock has been negative, the fundamentals paint a different picture. The company’s new AI chip, dubbed the MI300, notched $1.5 billion in sales in the third quarter of 2024 – a record for any product in a single quarter.
The Road Ahead: A Path to Growth
AMD guided to $5 billion in MI300 sales for 2024, up from $4.5 billion. Analysts expect this number to reach approximately $9.5 billion in 2025. Momentum on the AI chip front has AMD on pace for at least 50% earnings growth this year, with some estimates suggesting that figure could be well north of 70%.
A Valuation Gap: The Stock’s Undervalued Potential
The stock trades on a trailing price-to-earnings growth (PEG) ratio of 0.31 times – below Nvidia’s and Intel’s multiples. AMD’s forward price-to-earnings (PE) multiple of 24 times is also underwhelming compared to its competitors.
A Buying Opportunity: The Case for AMD
Despite the challenges, analysts like Evercore ISI semiconductor analyst Mark Lipacis believe that AMD has a bright future ahead. With Nvidia dominating the market share, leaving only 20-30% for AMD to prosecute as the only other merchant chip supplier, the company’s strategy is poised to reap significant rewards.
Conclusion: A Stock Worth Watching
As individual investors, it’s essential to stay informed about industry trends and sentiment. While AMD faces challenges, its fundamentals suggest a path to growth and undervalued potential. It may be worth keeping an eye on this stock as the market navigates the complexities of AI, cloud computing, and emerging technologies.
Stay Informed
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Author Bio:
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow him on X at @BrianSozzi and on LinkedIn.
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Email Brian Sozzi at brian.sozzi@yahoofinance.com with tips, questions, or comments about deals, mergers, activist situations, or any other market-related topics.
