Artificial intelligence (AI) has been the driving force behind the growth of many tech companies lately. With AI infrastructure spending ramping up, Advanced Micro Devices (AMD 0.10%) has benefited from tech giants investing in advanced processors.
However, AMD's stock hasn't benefited all that much from the AI boom, and semiconductor rival Nvidia (NVDA -2.09%) has overshadowed much of the company's impressive results.
Over the past year, AMD's stock has tumbled 13% compared to the S&P 500's 26% gains (as of this writing). So, where is AMD headed over the next year? Let's take a look.
AMD is tapping into AI's growth
To understand where AMD might be in one year, you need to first look at what's happening with the company right now. In the company's third quarter (ended Sept. 28), AMD's sales rose 18% year over year to $6.8 billion and diluted generally accepted accounting principles (GAAP) earnings per share spiked 161% to $0.47.
The main driver of AMD's growth in the quarter came from its data center revenue, which includes sales of its GPU processors for AI, which soared 122% to $3.5 billion. Management said this impressive sales growth puts the company on track for fourth-quarter sales to increase 22% to $7.5 billion.
The company is benefiting from large tech companies ramping up spending on AI infrastructure, which rival Nvidia estimates could reach $2 trillion over the next five years. Even AMD's management has had to adjust to all of the AI semiconductor spending. The company now estimates full-year data center GPU revenue will be $5 billion, a huge increase from its initial $2 billion estimate at the beginning of the year.
Despite AI opportunity, AMD could still have a bumpy 2025
It's difficult to determine why one company vastly underperforms the market while its rivals soar. However, when it comes to AMD, a couple of things could continue to weigh down investor sentiment over the next year.
First, investors haven't been thrilled that the company's gaming and embedded segments have seen significant revenue declines -- 69% and 25%, respectively, in the third quarter. While AI is the future, falling sales from these two sales categories aren't sparking confidence in AMD for some investors.
Second, and more importantly, AMD is fighting an uphill battle against Nvidia. While AMD sells impressive hardware, Nvidia has an estimated 70% to 95% of the AI semiconductor market. Trying to gain ground against Nvidia will be a heck of a task over the next year.
AMD will likely continue to benefit from the shift to AI, but whether or not its share price will gain over the next year is trickier to predict. I'd be comfortable sitting on the sidelines of AMD right now, but buying shares might not be a bad idea if you're looking for cheap AI stock.
AMD's forward price-to-earnings ratio is 25.1 right now, compared to Nvida's more expensive forward P/E ratio of 32.6. Just keep in mind that AMD may be a bit volatile as investors try to decipher the company's long-term AI potential with falling sales in other segments and the company's GPU battle with Nvidia.
