Nvidia is the leading provider of data center graphics processing units (GPUs), used to develop artificial intelligence (AI) models. As of this writing, the stock price is up 187% year to date as the company delivers incredible revenue growth as demand for chips continues to outpace supply.
But Nvidia CEO Jensen Huang believes data center operators will spend $1 trillion over the next four years upgrading their infrastructure to meet the needs of AI developers. So this opportunity is big enough to support different GPU vendors. Advanced micro devices(NASDAQ: AMD) recently launched a line of its own AI GPUs, and the company has already won over some of Nvidia’s biggest customers.
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This is why AMD stock could be a great buy in the new year, even for investors who already own Nvidia.
Nvidia had an estimated 98% share of the data center GPU market in 2023, as there was virtually no competition for its flagship H100 chip. However, AMD launched its MI300X GPU in December and it quickly attracted many of Nvidia’s top customers, such as Microsoft, MetaplatformsAnd Oracle.
According to AMD, many of these data center operators are achieving better performance and lower cost of ownership by using the MI300X compared to the H100, which bodes well for AMD’s attempt to gain market share. However, Nvidia is not standing still: the H200 is already on the market, which is twice as powerful as the H100, and has just started releasing its new Blackwell GPUs.
The Blackwell-based GB200 NVL72 system can perform AI inference at 30 times the speed of the equivalent H100 system, so AMD has a big mountain to climb to catch up. The company just started shipping its MI325X to customers, which offers 20% better inference performance than the H200, which is a good start.
But investors have already turned their attention to AMD’s MI350 series, which should reach customers in the second half of 2025. It uses the company’s new CDNA (Compute DNA) 4 architecture, which delivers a 35x performance increase compared to CDNA 3 chips like the MI300. In other words, it will be a formidable competitor for Nvidia’s Blackwell chips, even if it launches more than six months later.
AI developers typically pay by the minute for computing power, so faster chips can translate into significant cost savings. That’s why performance can determine which chip giant wins market share, and that’s why Nvidia and AMD fight so hard to launch faster chips every six to 12 months.
Data centers will always play a key role in training AI models and supporting AI inference, but the chips in smartphones and computers are becoming powerful enough to run certain AI workloads on devices. This ensures a faster user experience, because chatbot questions, for example, do not have to travel to the data center before an answer can be formulated.
AMD dominates the market for AI chips used in personal computers (PCs). The Ryzen AI 300 Series delivers industry-leading performance across GPU, central processor (CPU), and new neural processor (NPU), allowing users to effortlessly run AI chatbot applications.
In fact, the Ryzen AI 300 series is three times more powerful when it comes to AI performance than AMD’s previous generation chips. They’re already powering the new Copilot+ PCs from Microsoft, and manufacturers like Lenovo and PK plan to triple the number of Ryzen AI devices they offer by the end of 2024. By next year, AMD expects there will be more than 100 computing platforms using these chips in commercial environments.
AMD generated a record $6.8 billion in total revenue in the third quarter of 2024 (ended September 28), which was an increase of 18% from the year-ago period. However, the AI-related segments delivered much faster growth.
The company’s data center revenue rose 122% to a record $3.5 billion, led by GPU sales. AMD CEO Lisa Su now says GPU revenues alone could reach $5 billion by 2024, up more than 150% from her original forecast of $2 billion this year.
AMD’s customer segment revenue rose 29% to $1.9 billion. It’s home to the Ryzen AI chips, and since Su believes the AI ​​PC cycle is still in its infancy, investors should look for strong growth in this segment in 2025.
The reason AMD’s overall revenue growth didn’t exceed 18% is because the company’s gaming segment saw a 69% decline in revenue compared to the same period a year ago. The demand for flagship consoles such as Microsoft’s Xbox and Sony‘s PlayStation 5 and PC gamers are eagerly awaiting a new generation of AMD GPUs that will hit the market in 2025.
Image source: Getty Images.
The Wall Street Journal follows 54 analysts who cover AMD stock, and 37 have given it the highest possible Buy rating. Another seven are in the overweight (bullish) camp, and ten recommend holding. No analyst recommends selling.
They have an average price target of $185.77 for the next 12 to 18 months, which implies an upside of 31% from the share price at the time of writing. However, the Street high target of $250 suggests AMD shares could rise 76%.
According to Yahoo! Wall Street’s consensus forecast for 2025 suggests that AMD’s earnings per share (EPS) could rise 54% to $5.14, putting the stock at a price-to-earnings ratio of 27.6. The stock would need to rise 71% next year to trade in line with its current price-to-earnings ratio of 47.3 (based on the company’s trailing-twelve-month earnings per share of $3), so the Street high target could well be realistic.
AMD’s forward price-to-earnings ratio is also much cheaper than Nvidia’s price-to-earnings ratio of 31.3. Nvidia deserves a premium rating because it is currently growing its revenue and profits faster than AMD, and still has a clear lead in data center GPUs.
However, Nvidia has so much market share that it will likely only shrink from here, while AMD is only just starting to break into the segment, so the best growth could still be ahead. Furthermore, as the leader in the AI ​​PC chip segment, AMD has a front-row seat to what could be the next big growth catalyst for the AI ​​industry.
That’s why AMD stock could be a great buy for any investor as we head into 2025. But given that the company is a top candidate to take over some of Nvidia’s market share in the data center industry, investors who own Nvidia stock could hedge some of that risk by buying into AMD.
Consider the following before buying shares in Advanced Micro Devices:
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, HP, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Nvidia shares are up 187% in 2024, but here’s another super semiconductor stock to buy in 2025, according to Wall Street originally published by The Motley Fool
