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In the past 10 years of my life, a few things have been constant.
One, I can’t seem to drink enough water to support my insanely grueling workouts. Two, Nvidia’s (NVDA) stock price usually only goes up. Three, rival chip player AMD’s (AMD) stock price usually only goes up. And four, I don’t get enough sleep.
Happy to say three of those constants held, well, constant in 2024.
The one that didn’t? The stock price of now former highflier AMD finished the year down 17%. By comparison, Nvidia advanced 171% in 2024, Broadcom (AVGO) rose 107%, and the Nasdaq Composite (^IXIC) tacked on 28%.
AMD was the ninth most popular stock (Nvidia was No. 1) held in retail investor portfolios last year, according to data from Vanda Research. The stock, on average, made up 2.07% of the average retail investor’s portfolio, down from 3.37% at the start of 2024.
AMD’s stock price performance is astonishing if you ask me, given 1) the impressive earnings growth of the company; 2) top-notch innovation and execution on the chip front, which I was reminded of by AMD chair and CEO Lisa Su in a September chat; and 3) Intel (INTC) has fallen apart (more on that here from Yahoo Finance’s Yasmin Khorram and Laura Bratton), allowing for more land-grab opportunities for AMD.
“It’s the view AMD is lost in the AI arms race behind Nvidia, and so far it’s been disappointing,” Wedbush tech analyst Dan Ives told me.
Ives makes a key point about AMD at this juncture. The stock is being driven more by perception than actual fundamentals and outlook. To that end, here are three problems I am seeing right now with AMD sentiment.
The Nvidia effect: Nvidia’s product pipeline — led by the new Blackwell chip now hitting markets — is viewed by the Street as being one year ahead of AMD in terms of artificial intelligence performance (something that may be on display in Nvidia CEO Jensen Huang’s CES keynote next week). This is seen as holding back market share gain opportunities for AMD.
The cloud player effect: Major cloud players are increasingly opting for custom chips from Marvell (MRVL) and Broadcom. For example, Amazon (AMZN) has strongly indicated its preference for custom chips from its Trainium line and Marvell or for Nvidia products, Bank of America analyst Vivek Arya pointed out. Separately, Google (GOOG) continues to prefer internal chips and those from Broadcom and Nvidia.
Weak PC sales outlook: The outlook for the PC market in 2025 remains subdued at best, putting risk to AMD’s estimates. Some on the Street have whispered the first half of 2025 could actually bring a PC market correction.
AMD did little to help sentiment around its stock by guiding for fourth quarter earnings per share to be 8% below consensus when it reported earnings in late October.
“AMD’s challenge (and opportunity) in calendar year 2025 will be to take share in enterprise PC where Intel is dominant, while fending off threat from ARM-based (Qualcomm) rivals,” Arya wrote.
Having said that, the fundamentals paint a different picture of AMD — and it raises the question if the stock has gotten too cheap.
The company’s new AI chip, dubbed the MI300, notched $1.5 billion in sales in the third quarter of 2024. It represented the fastest product to $1 billion in sales in a quarter ever for AMD. AMD guided to $5 billion in MI300 sales for 2024, up from $4.5 billion.
The Street thinks this number could reach about $9.5 billion in 2025.
Momentum on the AI chip front has AMD on pace for at least 50% earnings growth this year, based on analyst estimates on Yahoo Finance. If the PC market doesn’t drop off and AI demand stays strong, AMD’s earnings growth could be well north of 70%.
“We believe AMD is being underestimated for its AI potential,” Ives contended.
Looking at the stock’s valuation, investors have forgotten that type of growth potential for AMD.
The stock trades on a trailing price-to-earnings growth (PEG) ratio of 0.31 times, below 1 times for Nvidia and oddly below the 0.55 times afforded struggling Intel. AMD’s forward price-to-earnings (PE) multiple of 24 times is also well under Nvidia’s.
And the stock is off by almost 50% from its 52-week high while competitors hover around record highs.
“We remain buyers based on our view that the company continues to gain traction as the #2 supplier of merchant accelerator solutions,” Evercore ISI semiconductor analyst Mark Lipacis wrote. “History shows that one ecosystem typically captures 70-80% of the value of each computing era, which we’ve argued would be Nvidia, leaving 20-30% of a rapidly growing market for AMD to prosecute as the only other merchant chip supplier. We like AMD’s strategy, which we view to be similar to its (successful) CPU strategy vs. Intel and focused on optimizing its solution for the high-volume AI workloads.”
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Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
