The Bullish Breakdown: Is AMD Stock a Buy for 2025?

Summary:

1. AMD's stock is facing pressure from AI competitors, but the company is expanding its market share in the server CPU sector.

2. AMD is currently undervalued, trading below its 15-year average P/E ratio, with strong earnings growth projected in the future.

3. AMD's AI GPUs target cost-conscious markets, giving it a competitive advantage over Nvidia's premium products.

4. While there are challenges in gaming and embedded sectors, AMD's growth in data centres and its increasing market share at Intel’s expense make it an appealing investment opportunity.

Business Overview:

The two key segments of focus right now for AMD are their Data Center and Gaming divisions.

Looking at Data Center’s we can see that Net Revenue is up 122% Y/Y and Operating Income is up 240% Y/Y. This indicates strong growth in this segment as AMD is currently the leading provider in this area. Over the past months, they’ve stolen market share from Intel and currently dominate 10% of the market with Nvidia holding the remaining 90%.

When we look at gaming revenues we can see that they have declined significantly over the past few quarters. This is mainly due to the decline in console sales as people are now waiting for the next generation consoles to be released. Therefore, we should see an uptick in revenues in the coming two years as Sony releases a new console comprised of AMD’s chips.

Valuation:

AMD's blended P/E ratio is currently 35.9x and this may seem high, but it's important to factor in future growth drivers. The company has shifted focus to AI chips for data centers, showing strong growth despite not being the next Nvidia. While there are weaknesses in Gaming and Embedded due to slower PC upgrades, data center growth and gains in CPU market share against Intel offset these challenges. AI is a long-term growth driver, and AMD is well-positioned. Even at 35.9x, AMD is trading well below its 15-year average P/E of 51.4x.

Takeaway:

While AMD may not have the same level of recognition as NVIDIA, it’s emerging as a strong contender in the processor market. As more small businesses start investing in AI, many are likely to opt for more affordable solutions, rather than paying premium prices. This is where AMD’s competitive pricing and strong product lineup give it significant potential in the AI boom. As a result, AMD could be an attractive option for long-term investors looking to capitalize on this growth.

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