Summary

• Advanced Micro Devices is poised for substantial growth in 2025, driven by scaling AI accelerator deliveries and data center segment strength.

• Despite recent stock price lows, AMD's operating profit is expected to upscale significantly, making it a strong buy opportunity at current valuations.

• AMD's data center business, particularly with EPYC and Instinct GPU shipments, is outperforming Nvidia and is undervalued by the market.

• Investors should consider buying AMD stock near 52-week lows due to its discounted valuation and robust growth potential in 2025.

AMD headquarters in Santa Clara, California, USA

JHVEPhoto

Advanced Micro Devices, Inc. (NASDAQ:AMD) has not been able to catch a break in the last six months as the stock made a string of new 52 week lows as of late. As infuriating as the persistent decrease in the company’s stock price is, the chip company is poised to see robust growth in 2025.

Advanced Micro Devices made a good earnings presentation for 4Q24, but investors seem to have tired after DeepSeek emerged on the scene and introduced new ‘FUD’ into the semiconductor market. That said, Advanced Micro Devices is poised for a substantial rebound in 2025, in my view, particularly as investors can expect an operating profit upscaling throughout the year.

As Advanced Micro Devices scales up its AI accelerator deliveries (particularly the MI325X), the chip company should see corresponding growth in cash flow and profits, which in turn should open up a re-rating opportunity.

My Rating History

I have been a big fan of Advanced Micro Devices, particularly because interest in Advanced Micro Devices has unfairly waned.

AMD is just about to scale up chip deliveries for data centers in 2025, which should create a path for the chip company to showcase its well-performing data center business to investors.

In my last piece on Advanced Micro Devices, I specifically pointed to the fact that AMD was starting to outperform Nvidia Corporation (NVDA) in the data center segment which was a fact that I found was not reflected in AMD’s valuation.

As AMD’s stock is now selling for a big discount to Nvidia’s, I think that investor sentiment has turned too bearish and I perceive AMD to still be a ‘Strong Buy’ opportunity.

AMD’s Data Center Potential Is Mispriced, Operating Income Upscaling

Advanced Micro Devices managed to beat profit estimates for its 4Q24 at the start of the month, but only by a relatively modest 1 cent per share (AMD reported $1.09 per share actual profits vs. $1.08 per share estimated).

Earnings And Revenues

Earnings And Revenues (Yahoo Finance)

Despite widely held concerns that AMD has fallen back way behind Nvidia in data centers, the chip company is poised to scale up its sales, profits and cash flow in 2025. The earnings presentation for 4Q24 made an overall good impression, particularly with respect to the data center segment.

Advanced Micro Devices generated $7.7B in sales in the fourth quarter, up 24% YoY, which was a record amount for the chip company. Growth in sales was catalyzed primarily by two segments, data center and client. The data center segment is where Advanced Micro Devices has all the momentum right now and which has emerged as the biggest business for the chip company. In 3Q24, sales rose 18% YoY, so data center is seeing gradually stronger growth, driven by high demand for AI accelerators.

In this segment, AMD sells server CPUs and GPUs, DPUs, FPGAs and Adaptive SoC products while its client segment deals with CPUs, APUs and chipsets for desktop and notebook personal computers. In data center, AMD profited from a 69% YoY increase in sales (9% QoQ) as hyperscalers are investing heavily in their data center infrastructures and need all the AI accelerators they can get their hands on.

This segment produced $3.9 billion in sales, also a record for Advanced Micro Devices, but its operating profits grew even faster, at 74% YoY. AMD’s data center growth is fundamentally supported by growth in AMD Instinct GPU and EPYC shipments. AMD’s EPYC are server CPUs that rode a wave of popularity with data center operators and are one of AMD’s most successful products ever.

Client did also quite well for Advanced Micro Devices with net sales of $2.3 billion, up 58% YoY and up 23% QoQ, with growth being primarily catalyzed by high demand for AMD’s Ryzen processors. Data center is now Advanced Micro Devices' biggest segment, and it is here that the chip company can make a difference in terms of operating profit upscaling in 2025.

Net Revenue

Net Revenue (Advanced Micro Devices, Inc.)

AMD’s operating profit skyrocketed in 2024, thanks to enormous market demand for AI accelerators that Advanced Micro Devices has started to ship at scale in the latter half of 2024.

In 4Q24, Advanced Micro Devices produced a non-GAAP operating profit of $2.0 billion, up 43% YoY, thanks to data center and client strength, with 57% of total operating profits coming from data center.

In 2024, the chip company earned $6.1B in total non-GAAP operating income, up 26% YoY while the operating profit margin rose from 21% to 24%. As AMD’s Instinct shipments scale up in 2025, I think that the chip company has substantial potential to extend its streak of operating profit gains this year.

Growing operating profits and excessively discounted profit potential are the main reasons why I think that investors should take a risk and consider buying the stock of Advanced Micro Devices near 52-week lows.

Operating Income

Operating Income (Advanced Micro Devices, Inc.)

Gobbling Up Shares At 52-Week Lows

Advanced Micro Devices now has one distinct advantage over its main peer Nvidia: The stock is now much cheaper and likely discounted beyond what is reasonable.

While Nvidia has seen a decrease in its stock price after the release of DeepSeek, the chip company has nicely recovered and has traded back up to $140 per share. In the last couple of days, chip companies have sold off brutally, despite Nvidia making a rather solid earnings presentation for 4Q25.

Advanced Micro Devices, on the other hand, is still very much languishing as investors don’t seem to be able to grasp the company’s substantial upside potential in 2025 as it begins to scale MI235X AI accelerator shipments.

The market presently models $6.34 per share in profits for the chip company in 2026, reflecting back to us estimated profit growth of 35% YoY. Nvidia is anticipated to produce $5.71 per share in profits in 2026, which yields a 27% profit growth rate.

With these estimates, Advanced Micro Devices and Nvidia are selling for leading profit multiples of 15.8x and 21.9x. Meaning, Advanced Micro Devices’ profit potential is 28% cheaper than Nvidia’s at the time of writing.

Now, Nvidia is also expected to grow faster, as I just highlighted, but the discount to Nvidia’s valuation may not be justified if Advanced Micro Devices can indeed scale up its Instinct deliveries and catch up to Nvidia in terms of sales growth in 2025.

Last year, Advanced Micro Devices sold for 30x leading profits, a multiple I think the chip company could return to this kind of valuation multiple if AMD doesn’t disappoint investors with its operating profit upscaling in 2025 and ramps MI325X and, later, MI350X AI accelerator deliveries. A 30x profit multiple reflects an implied intrinsic value of $190, which is 90% above AMD’s present stock price.

Earnings Estimate

Earnings Estimate (Yahoo Finance)

Why The Investment Thesis Might Disappoint

There are a multitude of uncertainties and risks that could lead to negative surprises, such as the emergence of low-cost AI models comparable to DeepSeek that achieve higher performance results through better and most cost-effective large-language model training.

In addition, a failure to catalyze higher operating profit margins and higher earnings per share would also counteract my bullish investment thesis on the chip company.

Lastly, if Advanced Micro Devices falls further behind Nvidia, investors might continue to punish the chipmaker with a high relative discount to the GPU market leader.

My Conclusion

Advanced Micro Devices has been a disappointment in 2024 (and so far, in 2025) and the stock is obviously not a big investor favorite. But enough is enough. AMD has become too downtrodden as the chip company has meaningful catalysts in its business which investors fail to recognize.

As a matter of fact, as I pointed to in my last piece on the chip company, Advanced Micro Devices has started to outshine Nvidia in the data center business (in terms of sales growth), in 2024 and AMD is seeing quite decent momentum in data center and client, the two biggest businesses.

The emergence of DeepSeek has added new FUD to the semiconductor market, with Advanced Micro Devices suffering particularly from souring investor sentiment.

Since Advanced Micro Devices’ has a very strong chance of realizing an operating profit upscaling in 2025, led by data center, I think that AMD could be a highly promising investment in 2025.

I think investors should not give up on Advanced Micro Devices just yet and consider buying the stock in the vicinity of 52-week lows.