Advanced Micro Devices (AMD -8.74%) is one of the world's leading suppliers of chips for data centers, personal computers, and even cars. The data center business is the company's main focus right now, as it tries to compete with Nvidia in the market for graphics processing units (GPUs), which are used to develop artificial intelligence (AI).
AMD has won several of Nvidia's top customers since launching its first AI GPU, Instinct MI300 series, in late 2023, and it continues to release new versions with more processing power. Last month, data center giant Oracle announced it placed a large, multibillion-dollar order for one of AMD's upcoming GPUs, which hasn't even hit the market yet.
AMD's data center business is coming off a record year in 2024, and 2025 is shaping up to be even better. Its stock currently looks like a great value, so here's why now might be an excellent time to buy.
Image source: Getty Images.
Oracle placed a huge order for AMD's latest chips
AMD's first AI GPU, the MI300X, was designed to rival Nvidia's H100, which dominated the industry in 2023 and for most of 2024. It has attracted several buyers, including Oracle, Microsoft, and Meta Platforms, some of which are yielding better performance and lower costs compared to using the H100. AMD has since launched the more powerful MI325X to compete with Nvidia's newer GPUs, and it will release a whole new lineup this year called the MI350 series.
In order for AI software applications to become "smarter," the models at their foundation need to become bigger, which means developers need more computing power. Oracle's Gen2 cloud data centers are some of the most efficient in the world for AI training and AI inference. Not only do they use the latest GPUs from Nvidia and AMD, but they also run on Oracle's random direct memory access (RDMA) networking technology, which moves data from one point to another much faster than traditional Ethernet networks.
Since most AI developers pay for computing power by the minute, faster processing can translate into substantial cost savings, which is why industry leaders like OpenAI, Cohere, Meta, and Elon Musk's xAI are using Gen2 infrastructure.
On a conference call with investors on March 10, Oracle chairman Larry Ellison said the company placed a multibillion-dollar order to buy 30,000 of AMD's upcoming MI355X GPUs. These chips haven't even started shipping yet, and won't ship in any meaningful volume until mid-year.
But there's a clear reason Oracle wants to be at the front of the line: The MI355X is based on AMD's new CDNA (Compute DNA) 4 architecture, which delivers 35 times more performance than the older CNDA 3-based chips like the MI300X. Simply put, they could perform as well -- or maybe even better -- than Nvidia's latest Blackwell chips, which have become the benchmark for AI development.
NASDAQ: AMD
Key Data Points
AMD's data center business is coming off a record year
AMD generated $25.8 billion in total revenue during 2024. Its data center business accounted for almost half of that, bringing in a record $12.6 billion, which was a whopping 94% increase compared to the prior year.
AMD CEO Lisa Su said GPU sales specifically represented $5 billion of the data center segment's total revenue, but she believes that will scale into the tens of billions annually over the next few years. Oracle's massive order of MI355X GPUs is just one example that proves she might be right.
But AMD has also become a top supplier of AI chips for personal computers, which helped drive its "client" segment to a record $7 billion in revenue during 2024. That was a 52% jump from 2023, and this will be a key business unit to watch because AMD's chips will allow more AI workloads to run on devices. This reduces reliance on external data centers, and creates a faster, more convenient experience when using chatbots and other AI software.
On the flip side, the remainder of AMD's 2024 revenue came from its gaming and embedded segments, which shrank by 58% and 33% on the year, respectively. The gaming business should get a boost in the next few quarters from the recent launch of AMD's new Radeon 9070 GPU, which has received excellent reviews so far. The outlook for the embedded segment is less clear, but the company does expect growth in 2025.
Image source: Advanced Micro Devices.
AMD stock looks like a good value right now
Based on AMD's $3.31 in non-GAAP (generally accepted accounting principles) earnings per share (EPS) in 2024, its stock trades at a price-to-earnings (P/E) ratio of 31.2, as of this writing. That makes AMD much cheaper than Nvidia, which trades at a P/E ratio of 36.7.
Moreover, according to Yahoo! Finance, Wall Street's consensus estimate suggests AMD's EPS could rise to $4.67 in 2025. That places its stock at a forward P/E ratio of 22.1, which means it would have to soar by 41% this year just to maintain its current P/E ratio of 31.2.
We already know 2025 is shaping up to be a record year for AI data center spending. Amazon, Alphabet, Microsoft, and Meta Platforms plan to spend over $300 billion (combined) on infrastructure and chips by the end of the year, according to their own forecasts. That doesn't even include spending from other AI giants like Oracle, OpenAI, and Tesla, to name a few.
Considering AMD's current valuation, soaring data center revenue, and potential growth in 2025 (and beyond), this could be a great time for investors to swoop in and buy the stock.
