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In the past ten years of my life, some things have been constant.
First, I can’t seem to drink enough water to support my insanely hard workouts. Second, Nvidia (NVDA) stock price usually only goes up. Third, competitor AMD (AMD)’s stock price usually rises. And fourth, I don’t get enough sleep.
I’m happy to say that three of these constants remain constant in 2024.
Who didn’t? The stock price of former leader AMD ended the year down 17%. By comparison, Nvidia is up 171% in 2024, Broadcom (AVGO) is up 107%, and the Nasdaq Composite (^IXIC) is up 28%.
AMD was the ninth most popular stock (Nvidia was No. 1) held in individual investors’ portfolios last year, according to data from Vanda Research. The stock represents, on average, 2.07% of the average retail investor’s portfolio, down from 3.37% at the beginning of 2024.
AMD’s stock price performance is amazing if you ask me, given 1) the company’s impressive earnings growth; 2) Top-notch innovation and execution on the chip front, which AMD President and CEO Lisa Su reminded me of in a conversation in September; And 3) Intel (INTC) has collapsed (more on that here from Yahoo Finance’s Yasmin Khorram and Laura Bratton), allowing more land grab opportunities for AMD.
“It’s the view that AMD has lost out in the AI arms race behind Nvidia, and so far it’s been disappointing,” Dan Ives, a technology analyst at Wedbush, told me.
Ives makes a key point about AMD at this point. The stock is driven more by perception than actual fundamentals and expectations. To that end, here are three issues I now see with AMD sentiment.
Nvidia effect: The Street views Nvidia’s product pipeline — led by the new Blackwell chip now hitting the market — as one year ahead of AMD in terms of AI performance (something that may be on display in Nvidia CEO Jensen Huang’s keynote at CES next week ). This is seen as hampering AMD’s market share gain opportunities.
Cloud operator effect: Major cloud players are increasingly opting for custom chips from Marvell (MRVL) and Broadcom. For example, Amazon ( AMZN ) has strongly signaled its preference for custom chips from its Trainium and Marvell line or Nvidia products, noted Bank of America analyst Vivek Arya. Separately, Google ( GOOG ) continues to favor in-house chips and those from Broadcom and Nvidia.
Weak outlook for PC sales: The outlook for the PC market in 2025 remains weak at best, putting AMD’s estimates at risk. Some have whispered on the street that the first half of 2025 might actually bring about a correction in the PC market.
AMD did little to help sentiment around its stock by guiding fourth-quarter earnings per share to be 8% lower than expected when it reported earnings in late October.
“The challenge (and opportunity) for AMD in calendar year 2025 will be to capture share in Intel-dominated enterprise PCs, while fending off the threat from ARM-based competitors (Qualcomm),” Arya wrote.
However, the fundamentals paint a different picture for AMD — and that raises the question of whether the stock has become too cheap.
The company’s new AI chip, dubbed MI300, generated $1.5 billion in sales in the third quarter of 2024. It represents the fastest product to reach $1 billion in sales in a quarter ever for AMD. AMD is targeting MI300 sales of $5 billion for 2024, up from $4.5 billion.
The Street believes this number could reach about $9.5 billion in 2025.
Momentum on the AI chips front has AMD pushing for at least 50% earnings growth this year, based on estimates from analysts at Yahoo Finance. If the PC market does not decline and demand for AI remains strong, AMD’s earnings growth could reach over 70%.
“We believe AMD is being underestimated for its potential in AI,” Ives said.
Given the stock’s valuation, investors have forgotten about this kind of growth potential for AMD.
The stock trades on a price-to-earnings growth (PEG) ratio of 0.31 times, less than 1 times that of Nvidia and strangely less than the 0.55 times that struggling Intel offers. AMD’s forward price-to-earnings (PE) multiple of 24x is also much lower than Nvidia’s.
The stock is down nearly 50% from its 52-week high while competitors are hovering around record highs.
“We remain buyers based on our view that the company continues to gain strength as the No. 2 supplier of commercial accelerator solutions,” wrote Mark Lepassis, a semiconductor analyst at Evercore ISI. “History shows that one ecosystem typically captures 70-80% of the value of each computing era, which we argued would be Nvidia, leaving 20-30% of the fast-growing market for AMD to go after as the only other commercial chip supplier. We like AMD’s strategy, “Which we see as similar to its (successful) CPU versus Intel strategy and focused on improving its solution for high-volume AI workloads.”
Brian Susie He is the executive editor of Yahoo Finance. Follow Sozzi on X @Brian Susie And on LinkedIn. Advice on deals, mergers, activist positions, or anything else? Email brian.sozzi@yahoofinance.com.
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