Advanced micro devices (NASDAQ: AMD) stock has sold out in recent weeks. Weak PC sales and concerns about competition in the artificial intelligence (AI) accelerator market appear to have weighed on the stock.
On the surface, you can see why AMD has been struggling. Revenue of $18 billion in the first nine months of 2024 rose 10%, well below the triple-digit sales increases of its main rival. Nvidia. Additionally, revenues in AMD’s gaming and embedded segments are down 58% and 38%, respectively, through the first three quarters of 2024.
Nevertheless, a long-term trend in the chip market should halt the decline and keep the shares rising in the coming years. This is why.
Despite competitive concerns, investors should not write off the AI accelerator business and its ability to fundamentally change AMD. Allied Market Research predicts a compound annual growth rate of 38% for the AI chip market through 2032, suggesting there is a strong opportunity for massive growth over that eight-year period.
With the shortage of Nvidia accelerators, customers love them Microsoft And Metaplatforms have also turned to AMD. As a result, data center revenues (including AI accelerators) grew 107% in the first nine months of 2023.
More importantly, the data center segment represented 48% of AMD’s revenue so far this year. As of now, Nvidia’s data center segment will account for 87% of revenue in the first nine months of fiscal 2025 (ending October 27). Over time, the data center segment is on track to account for a larger share of AMD’s revenue, perhaps even eventually matching Nvidia’s 87% share.
A recovery in other segments could also reduce the revenue percentage from the data center segment. Regardless of the revenue source, however, improving growth likely means AMD stock will thrive over the next eight years.
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