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In the last 10 years of my life, a few things have been constant.
One, I can't seem to drink enough water to sustain my crazy workouts. Two, Nvidia (NVDA) stock price usually only goes up. AMD's three competing chip players (AMD) stock price usually only goes up. And four, I don't get enough sleep.
Happy to say that three of those constants have been held, well, constant in 2024.
The one that didn't? AMD's now former highflyer stock price ended the year down 17%. In comparison, Nvidia developed 171% in 2024Broadcom (AVGO) rose 107%, and the Nasdaq Composite (^IXIC) tackled at 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, accounted for 2.07% of the average retail investor's portfolio, down from 3.37% at the start of 2024.
AMD's stock price performance is astounding if you ask me, given 1) the impressive earnings growth of the company; 2) state-of-the-art innovation and execution on the chip front, and I was reminded by AMD chairman and CEO Lisa Su in a conversation in September; and 3) Intel (INTC) fell (more about that here by Yahoo Finance's Yasmin Khorram and Laura Bratton), allowing for more land grabbing opportunities for AMD.
“This is the view that AMD is lost in the AI arms race behind Nvidia, and so far it has been disappointing,” Wedbush technology analyst Dan Ives tell me
Ives makes a key point about AMD at this point. The stock is driven more by perception than actual fundamentals and prospects. To that end, here are three problems I currently see with AMD's feel.
Nvidia effect: Nvidia product pipeline – led by the new Blackwell chips that are now hitting the markets – is seen by the Street as being a year ahead of AMD in terms of AI performance (something that could be on display at Nvidia CEO Jensen Huang's CES keynote next week). This is seen as hindering opportunities to gain market share for AMD.
Cloud player effect: Major cloud players are increasingly choosing custom chips from Marvell (MRVL) and Broadcom. For example, Amazon (AMZN) has strongly indicated that he prefers custom chips from his Three-year line and Marvell or for Nvidia products, Bank of America analyst Vivek Arya he noted. Separately, Google (GOOG) continues to better internal chips and those from Broadcom and Nvidia.
Weak PC sales outlook: The outlook for the PC market in 2025 remains muted at best, putting AMD's estimates at risk. Some on the Street have whispered that the first half of 2025 could actually bring a PC market correction.
AMD did little to help sentiment around its stock by guiding 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 participate in Intel-dominated enterprise PC, while fending off a threat from ARM (Qualcomm) rivals,” Arya wrote.
That said, the fundamentals paint a different picture of AMD – and it raises the question of whether the stock has gotten too cheap.
The company's new AI chip, dubbed the MI300, managed to earn $1.5 billion in sales in the third quarter of 2024. This was the fastest product to $1 billion in sales in a quarter ever for AMD. AMD projected $5 billion in MI300 sales for 2024, up from $4.5 billion.
The Street believes this number could reach around $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 leak and AI demand remains strong, AMD's earnings growth could be well north of 70%.
“We believe that AMD is being underestimated for its AI potential,” Ives argued.
Looking at the stock's valuation, investors have forgotten that kind of growth potential for AMD.
The stock trades at a trailing price-to-earnings growth (PEG) ratio of 0.31 times, below 1 times for Nvidia and strangely lower than the 0.55 times given to Intel which finds it difficult AMD also has a price-to-earnings (PE) multiple of 24 times well below Nvidia's.
And the stock is nearly 50% off its 52-week high while rivals are hovering around record highs.
“We remain buyers based on our view that the company continues to gain traction as the #2 supplier of trade 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 fast-growing market for AMD to claim as the sole supplier of another merchant chip. We like AMD's strategy, which we consider similar to its (successful) CPU strategy against Intel and focuses on optimizing its solution for high-volume AI workloads.”
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Brian Sozzi is the Executive Editor of Yahoo Finance. Follow Sozzi on X @BrianSozzi and on LinkedIn. Suggestions on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
