AMD: A Quick Update
AMD’s AI‑Powered Runway Looks Undervalued
Advanced Micro Devices (AMD) closed on April 16 at $88.29 per share, approximately 40% below its peak price in the summer of 2024, despite delivering a year of record-breaking financial performance and significant advancements in its artificial intelligence (AI) product roadmap. This paper provides a comprehensive analysis of AMD’s recent performance, growth prospects, and valuation, offering a reasoned perspective on its current market position.
In 2024, AMD achieved historic results, reporting annual revenue of $25.8 billion, a 14% increase year-over-year, alongside record non-GAAP earnings per share (EPS) of $3.31. The fourth quarter alone was particularly strong, generating $7.66 billion in revenue and an adjusted EPS of $1.09. A critical contributor to this success was AMD’s AI-accelerator segment, which surpassed $5 billion in revenue for the year, significantly exceeding initial expectations set mid-year.
AMD’s future growth is expected to continue primarily through its advanced AI products and innovations in processor technology. The upcoming releases of the MI300 and MI325X GPUs, scheduled to scale production in the latter half of 2025, are projected by analysts to contribute around $10 billion in AI-specific revenue by the end of the year, supported by robust gross margins estimated to remain above 50%. Additionally, AMD’s "Turin" Zen 5 EPYC processors, anticipated to launch in mid-2025, are expected to further capture market share in cloud CPUs, potentially pushing AMD’s share past the critical 30% threshold. Furthermore, embedded solutions and technologies derived from AMD’s acquisitions of Xilinx and Pensando continue to enhance the overall gross margin, which stood impressively at 54% in Q4 2024.
Market analysts currently forecast AMD’s fiscal year 2025 earnings per share in a range between $4.10 and $4.60, with predictions for fiscal year 2026 even stronger, potentially exceeding $6 per share. At the current price, AMD trades at roughly 19 times the projected earnings for 2025 and only 14 times earnings estimates for 2026. These valuations seem notably modest when compared to the company’s projected three-year compounded annual growth rate (CAGR) in EPS, which exceeds 35%. Analysts largely maintain a favorable stance on the stock, with average price targets near $178, suggesting a potential upside close to 100%. Even a conservative valuation using a multiple of 23 times the 2026 EPS indicates an intrinsic value range of approximately $140 to $150 per share, translating to substantial upside potential of approximately 55% to 70% from current levels.
However, certain risks remain. AMD faces formidable competition from Nvidia, whose CUDA platform maintains strong market dominance. Additionally, major technology companies increasingly developing their own custom AI chips pose a threat to AMD’s market opportunities. Recent management guidance also highlighted a potential short-term challenge, forecasting a sequential decline of about 7% in data-center revenue for the first quarter of 2025, as cloud providers manage their inventory levels. Any delays or execution issues related to the production ramp of the MI300 GPUs or the 3-nanometer process technology could exacerbate these challenges.
In conclusion, despite these risks, AMD’s valuation and forward-looking growth prospects strongly suggest that the company is undervalued at its current stock price. Investors purchasing AMD shares today are effectively paying market-average multiples for a company that continues to exhibit robust growth and margin expansion, powered by its strategic positioning in the booming AI hardware segment. Given its solid financial footing, including substantial cash flow and a net-cash balance sheet, alongside a clearly defined and ambitious product development trajectory, AMD represents an attractive investment opportunity. Consequently, AMD receives a Buy rating for investors who can manage semiconductor market volatility. The proposed two-year price target of $140–$150 provides an attractive risk-reward scenario, with the downside likely limited to scenarios involving severe market downturns or significant operational setbacks, neither of which currently appear probable.