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In the last 10 years of my life, some things have been constant.
First, I can’t seem to drink enough water to endure my incredibly grueling workouts. Second, the Nvidia (NVDA) stock price typically only goes up. Third, the share price of rival chipmaker AMD (AMD) typically only goes up. And fourth, I don’t get enough sleep.
I’m happy to say that three of those constants remained, well, constant in 2024.
The one who didn’t? The stock price of AMD, now a former blockbuster company, ended the year down 17%. In 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) in retail investors’ portfolios last year, according to data from Vanda Research. The stock, on average, represented 2.07% of the average retail investor’s portfolio, up from 3.37% at the beginning of 2024.
In my opinion, AMD’s stock price performance is surprising, given 1) the company’s impressive earnings growth; 2) world-class innovation and execution on the chip front, something AMD President and CEO Lisa Su reminded me of in a September talk; and 3) Intel (INTC) has collapsed (more on this here from Yahoo Finance’s Yasmin Khorram and Laura Bratton), allowing more land grab opportunities for AMD.
“It’s the view that AMD is lost in the AI arms race behind Nvidia, and so far it’s been disappointing,” Wedbush technology analyst Dan Ives told me.
Ives makes a key point about AMD right now. The action is being driven more by perception than actual fundamentals and prospects. To that end, here are three problems I’m seeing right now with AMD sentiment.
The Nvidia effect: The Street believes that Nvidia’s product portfolio, led by the new Blackwell chip now hitting markets, is a year ahead of AMD in terms of AI performance (something that can be shown in the company’s CES keynote). Nvidia CEO Jensen Huang next week.) This is seen as dampening AMD’s chances of gaining market share.
The effect of cloud player: Major cloud players are increasingly opting for custom chips from Marvell (MRVL) and Broadcom. For example, Amazon (AMZN) has clearly indicated its preference for custom chips from its Trainium and Marvell line or for Nvidia products, noted Bank of America analyst Vivek Arya. On the other hand, Google continues to prefer 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 bring a correction in the PC market.
AMD did little to improve sentiment around its stock by guiding fourth-quarter earnings per share to be 8% below consensus when it reported its earnings in late October.
“AMD’s challenge (and opportunity) in calendar year 2025 will be to take part in enterprise PCs where Intel is dominant, while fending off the threat of ARM (Qualcomm)-based rivals,” Arya wrote.
That said, the fundamentals paint a different picture of AMD, and begs the question of whether the stock has gotten too cheap.
The company’s new AI chip, called MI300, recorded $1.5 billion in sales in the third quarter of 2024. It represented the fastest product to reach $1 billion in sales in a quarter for AMD. AMD forecast MI300 sales of $5 billion by 2024, up from $4.5 billion.
The Street believes this figure could reach around $9.5 billion by 2025.
Momentum on the AI chip front keeps AMD on track for at least 50% profit growth this year, according to Yahoo Finance analyst estimates. If the PC market doesn’t decline and AI demand remains strong, AMD’s earnings growth could be well above 70%.
“We believe AMD is being underestimated for its AI potential,” Ives said.
When looking at the stock’s valuation, investors have forgotten that kind of growth potential for AMD.
The stock trades at a price-to-earnings growth (PEG) ratio of 0.31 times, less than 1 times for Nvidia and, interestingly, below the 0.55 times offered by struggling Intel. AMD’s forward price-earnings (PE) multiple of 24 times is also well below Nvidia’s.
And the stock is down nearly 50% from its 52-week high, while competitors hover around all-time highs.
“We remain buyers based on our view that the company continues to gain ground as the No. 2 provider of commercial accelerator solutions,” Evercore ISI semiconductor analyst Mark Lipacis wrote. “History shows that an ecosystem typically captures 70% to 80% of the value of each computing era, which we have argued would be Nvidia, leaving 20% to 30% of a rapidly growing market for “AMD processes it as the only other commercial chip supplier. We like AMD’s strategy, which we see as similar to its (successful) CPU strategy against Intel and focuses on optimizing its solution for high-volume AI workloads.” .
StockStory aims to help individual investors beat the market.
Brian Sozzi is the executive editor of Yahoo Finance. Follow Sozzi on X @BrianSozzi and in LinkedIn. Advice on deals, mergers, activist situations or anything else? Send an email to brian.sozzi@yahoofinance.com.
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