The stock market can sometimes feel like a popularity contest. Investors have flocked to Nvidia because it's the dominant supplier of the data center chips powering artificial intelligence (AI) models. On the other hand, Wall Street has seemingly left Advanced Micro Devices (AMD 3.93%) in the dust. While Nvidia has soared an impressive 170% over the past 12 months, AMD has declined nearly 20%.
It's clear that AMD isn't the AI company Nvidia is. Its $3.5 billion in data center revenue in Q3 was a fraction of Nvidia's $30.8 billion. However, investing isn't always about following the herd. Often, the underdog can win big, too. Is AMD poised to perform better in 2025? Keep reading to discover if the stock is a buy right now.
AMD is finding AI success on a smaller scale
AMD offers its Instinct line of accelerator chips, which are purpose-built for artificial intelligence (AI). Nvidia is currently the market leader in AI chips, but the big technology companies that buy these chips for their data centers don't want to depend on one supplier for such a critical need. Therefore, companies like Microsoft and Meta Platforms work with other chips, including AMD's Instinct line.
As mentioned, AMD's data center revenue in Q3 was about 10% of Nvidia's. That's not bad when you're in such a vast market. Research from S&S Insider estimates that the AI chip market will grow from $61.4 billion in 2023 to $632 billion by 2032. AMD CEO Lisa Su has estimated it will reach $500 billion by 2028, a similar trajectory.
Nvidia's total revenue over the past four quarters was $113 billion, which shows just how much room there still is for growth in AI chips. AMD doesn't need to lead -- it can compete and still do very well for investors.
AI's impact on AMD should be more pronounced in 2025
Now, let's discuss why Nvidia's stock has performed so well, why AMD's hasn't, and why that could change. Each stock's performance over the past year makes sense when you look at the numbers. You can see below that Nvidia has grown revenue much more quickly than AMD. Given Nvidia's superior growth, it's not a shock that it enjoys a far higher price-to-sales ratio (P/S) than AMD. That said, AMD could soon join the party.
NVDA P/S Ratio data by YCharts.
Data center sales (where AI chips go) make up almost all of Nvidia's revenue, so AI-driven growth carries the whole business. However, AMD is more diversified than Nvidia, as data center revenue represents barely half of total Q3 sales.
Investors may not realize that AMD, despite its inferior market position, is seeing plenty of success. The company's data center segment grew 122% year over year in Q3, faster than Nvidia's 112%.
If this continues, AMD's total revenue growth will accelerate as AI becomes a more significant part of the business. As you can see above, this has happened over the past few quarters.
AMD could be a coiled spring ready to unleash returns
Things seem poised to pick up speed in 2025. Analysts estimate AMD's revenue will finish 2024 at $25.66 billion and increase to $32.56 billion in 2025. If accurate, that would represent nearly 27% growth. Ironically, AMD stock trades at a P/S ratio of 8.1 today, a far lower valuation than in early 2024, when growth was nowhere close to 27%.
It's also roughly just a quarter of Nvidia's valuation. I'm not arguing that AMD deserves a valuation as high as Nvidia's, but AMD has plenty of room for that valuation to expand. When you add things up, it starts getting interesting.
AMD's valuation could remain stagnant, and growing 27% would still produce a stellar one-year return. Factor in a higher valuation, and AMD could have a stretch similar to what Nvidia investors have enjoyed over the past few years. That handily makes the stock a buy today.
