Advanced Micro Devices (NASDAQ:AMD) is at a critical juncture below the $100 level, a week before its Q1 2025 earnings announcement on May 6th. It has pulled back significantly from its highs over $200 in early 2024, but this pullback raises the question of whether or not it could deliver triple-digit gains from here if it starts to bottom out and recover.
Despite recent stock pressure, AMD's core growth narrative is still a key focus for the bulls. The company continues to gain market share with its EPYC server processors and has been capitalizing on the expanding cloud computing market. It still holds over 50% share among hyperscalers for its EPYC CPUs.
Furthermore, its push into AI with Instinct accelerators like the MI300X, adopted by major players like Microsoft (NASDAQ:MSFT) and Meta (NASDAQ:META) does make it a NVIDIA (NASDAQ:NVDA) competitor, though AMD is still far from cracking NVIDIA’s moat. The MI350 GPU is set to sample with customers soon and is expected to further this push.
Management projects "strong double-digit percentage revenue and EPS growth" for the full year 2025. The company reported revenue of $7.66 billion (24% year-over-year growth) and earnings per share of $1.09 in Q4 2024, with both exceeding analyst forecasts. Investors were unimpressed as data center revenue came in at $3.86 billion vs. the expected $4.14 billion. Plus, the gaming segment declined 59% to $563 million. Even the embedded segment declined 13%.
For Q1, AMD has guided for revenue between $6.8 billion and $7.4 billion (midpoint: $7.1 billion) and a gross margin of around 54%.
CEO Lisa Su has projected "strong double-digit percentage revenue and EPS growth" for 2025, though she warned that AI chip sales in early 2025 will be similar to late 2024 before accelerating in the second half of the year.
Despite slower-than-expected progress, AMD is making good progress. The company’s chips are good for inference, and AI is increasingly trending towards maximizing inference usage. If this continues, AMD could end up being a much more major supplier in the long run.
The bull case is mostly a long-term rebound from the current dip. It hinges on the company catching up with NVIDIA in the GPU race, just like it caught up with Intel (NASDAQ:INTC) in the CPU race. CEO Lisa Su said that the GPU data center business would bring in tens of billions of dollars in annual revenue within years. Even if AMD does not catch up with NVIDIA, AMD could still outperform the market as long as the AI hype rally returns in earnest and creates a market big enough to accommodate two AI GPU giants.
The consensus price target of $140.57 implies 45.45% upside potential.
AMD faces intense competition from Nvidia, which is the clear leader in the AI market and controls somewhere between 70% and 95% of the market share for AI accelerators.
Unlike NVIDIA, AMD’s failure to meet data center revenue expectations has been a recurring problem that might continue to pressure the stock. Post-pandemic demand for PCs and gaming has normalized, so there’s not much optimism here either. Some analysts think AMD could drop further to the mid-$80s range before establishing a firm bottom.
Also, the stock still trades at 22 times forward earnings. On the other hand, NVDA trades at 25 times earnings and has much better fundamentals. Hence, I’d buy NVDA stock first.
I’d add a smaller position in AMD stock before earnings and be prepared to add more if the stock drops further or shows signs of a sustainable recovery.
