Despite rising demand for AI accelerators and profits from market share in the PC and server CPU market, stocks Advanced Micro Devices(NASDAQ:AMD) It has been sluggish for the past year. Since peaking in early 2024, AMD stocks have plummeted nearly 50%.
Revenue and revenue growth is not a problem. In 2024, AMD reported a 14% increase in revenue and a 25% increase in earnings per share. AMD’s fourth quarter results were solid, beating revenue expectations, including 69% growth and 58% growth in the data center and client segments, respectively. Simply put, things are generally going well for AMD.
The stock market has a different interpretation, which will lower AMD stocks following its fourth quarter report. The whole picture looks good, but there are some issues that can damage stock.
AMD generated more than $5 billion in revenue ai Accelerator for 2024. That’s essentially nothing for 2023. Its growth is impressive, but the company’s outlook for 2025 was hoping for a lot. AMD doesn’t provide details and says it is instead hoping for “strong double-digit growth.”
There are two issues with this outlook. beginning, nvidia It generated more than $30 billion in data center revenue in the most recent quarter alone. Every year, market leaders go out more than 20 times more than AMD. If you have the opportunity to steal market share, this is it. Still, AMD’s AI chip revenue Maybe it will grow to $7 billion Or this year.
Second, the demand for powerful AI accelerators remains booming. Microsoft, Meta Platform, alphabetand Amazon Each has announced a bold capital expenditure plan to increase the computing power of AI. That’s added to the Trump administration’s Stargate initiative. Against the backdrop of this AI spending, the outlook for AMD’s AI accelerator is absolutely disappointing.
In the long term, AMD expects its AI business to ultimately generate hundreds of billions of dollars in annual revenue. However, in uncertain timelines, investors appear in weapons.
AMD’s data center and client computing segments are working well. But two small segments are struggling. The gaming segment, which will be combined with the client computing segment from the next quarter, experienced a 58% revenue decline in 2024. This included the embedded segment, including AMD’s Xilinx acquisition, saw revenue of 33% last year, at 33% due to over-customer inventory levels. .
For game segments, there are no easy fixes. AMD’s gaming GPU business has been far behind Nvidia for many years, and the launch of this year’s new product is unlikely to dramatically change the story. The semi-custom chip business, which offers chips to major gaming consoles, will not rebound until the next-generation consoles are released.
The embedded segment is especially disappointing considering how much AMD was spent getting Xilinx. The built-in segment generated revenue of $3.6 billion and operating profit of $1.4 billion last year, compared to Xilinx’s $35 billion price tag. So far, it appears that AMD has overpaid.
AMD stocks are not overly expensive based on adjusted earnings, with a price and return of around 33. However, there are a few things to remember.
First, the data center CPU and PC CPU business is almost certain to slow down. The PC market is particularly slow and rival Intel We are becoming more proactive about stabilizing market share. AMD stocks are not expensive, but they are not cheap either. A slowdown in growth could lead to lower inventory.
Second, investors should not underestimate the possibility that AI is a massive bubble, and long-term estimates of “tens of millions of dollars” from AMD, the AI chip business, will never come to fruition. If AMD’s AI chip business doesn’t accelerate from here, a key element of the company’s growth story will collapse.
That being said, AMD remains extremely competitive in the core data center and PC CPU business, regardless of what Intel does. The company’s products are amazing, and it appears that the days when Intel’s era dominated these markets are over. AMD makes sense as a long-term investment, but in the short term, stocks could face more challenges in 2025.
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Randi Zuckerberg, a former director of market development, Facebook spokeswoman and sister to Metaplatform CEO Mark Zuckerberg, is a member of Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of the board of directors of Motley Fool. Timothy Green I have a position in Intel. Motley Fool features Advanced Micro Devices, Alphabet, Amazon, Intel, Meta Platforms, Microsoft, and Nvidia, and recommends it. Motley Fool recommends the following options: A $395 call with long Microsoft in January 2026, a $27 call with short Intel in February 2025, a $405 call with short Microsoft in January 2026. To Motley’s fool Disclosure Policy.
