Is the market finally willing to reward the runners-up? This has been the dilemma for Advanced Micro Devices (AMD) over the past few quarters, as the company has posted record results in data centers and AI. However, in isolation, AMD’s results look great, but compared to market leader Nvidia (NVDA), they look weak.
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After losing more than a third of its market value over the last twelve months, the company appears to be de-risked enough to benefit from secular growth in data centers—not by directly taking market share from Nvidia, but by capitalizing on the broader expansion of the sector.
About to report its Q4 earnings on February 4th, AMD is at the forefront of investor attention. The company is seeking to equalize CPU market share with NVDA and get its investment case going again. Key macro questions remain: is there sufficient commercial space for two leading CPU manufacturers in the market, and can AMD emulate Nvidia?
Latest Developments Suggest Overlooked Value in AMD
Much of my optimism for AMD in 2025 rests on the fact that the company is part of the secular growth trends in AI. However, it is not necessarily at the forefront of the primary beneficiaries of this market.
Starting with the last quarter, AMD’s management team said that, looking ahead, the company sees significant growth opportunities across their data center, client, and embedded businesses, driven by the insatiable demand for more computing power. As with other big tech companies, ongoing investments in AI infrastructure do not suggest any failure of demand in AI yet. All forecasts point to continued investments in this area, which is excellent news for a company like AMD despite trailing behind the industry’s most prominent player – NVDA, holding ~80-90% of the market share.
Specifically, in Q3 2024, AMD reported a 17.5% year-over-year growth in consolidated revenues, with its data center business skyrocketing by 122% and operating income increasing by 223%. The management team also reported that it achieved record revenues in the data center segment, which points to a scenario in which AMD is clearly gaining traction in this market.
But even so, apparently, the market hasn’t valued runners-up because even with triple-digit increases on its bottom line, AMD’s numbers look weaker in comparison to Nvidia, which is dominating the data centers segment so aggressively that even after reporting record growth, AMD still disappoints frothy investor expectations. As a result, AMD’s stock price has struggled to gain momentum and continues to underperform Nvidia’s over the past six months. Since reporting its latest earnings on October 29th last year, AMD’s stock has dropped nearly 30%.
Analysts Project Solid Growth Multiples for AMD in 2025
Based on estimates, AMD is expected to end FY2024 with EPS and revenue growth of 25.4% and 13.1%, respectively—much more modest growth than Nvidia. However, for 2025, AMD’s projections show EPS growing by 48.8% and revenues by 25.2%. Even more interesting, AMD is projected to grow by 38.9% in EPS and 23.2% in revenue in 2026, which are higher growth rates than Nvidia’s projections for the same period.
Much of AMD’s robust growth throughout FY2024 is unsurprisingly driven by its data center segment, particularly with the latest generation AMD Instinct MI300X, which is optimized for AI-driven data centers. Moreover, the data center segment should likely keep fueling AMD’s excellent growth over the next few years.
The downside is that the rest of AMD’s business has been unimpressive.
AMD’s historically strong gaming segment has struggled, with revenues down 69% year-over-year in the last quarter to just $462 million. I believe investors can expect more of this in the upcoming quarterly results, as I don’t foresee any near-term catalysts to change this outlook in the gaming segment.
What to Expect from AMD’s Q4 Earnings This Week
With Q4 earnings scheduled for after the closing bell on February 4th, I anticipate a good buying opportunity for AMD stock. Primarily, AMD management has a track record of keeping expectations modest and exceeding them, as evidenced by a history of top and bottom-line beats.
To beat market estimates this time in Q4, AMD must report EPS numbers above $1.08 and revenues above $7.53 billion (roughly at the midpoint of its guidance), implying annual growth of 41% and 22%, respectively. The bar is lower in both earnings and revenues, as analysts have already revised EPS growth expectations downwards by 6% in the last six months, while top-line estimates have remained practically unchanged over the same period.
A lower bar could help AMD regain momentum in case of a beat across the board and perhaps offer robust FY2025 guidance in the upcoming earnings call. The recent DeepSeek sell-off has also established a potential floor for AMD’s stock around the $115 mark.
On top of that, AMD has been overly discounted, trading at forward 34x earnings, around 17% below its historical average over the last five years. Even adjusting for growth, AMD trades at a PEG ratio of 0.79x, about 40% below its historical average and much more discounted than Nvidia’s 1.07x PEG.
Is AMD a Buy or Sell Now?
On TipRanks, the stock carries a Moderate Buy consensus rating based on 14 Buy, eight Hold, and one Sell ratings over the past three months. Currently, AMD’s average price target of $161.55 per share implies an almost 40% upside potential from current levels.
Shareholders to Benefit as AMD Chases Down CPU King Nvidia
AMD is set to report its Q4 results amid turbulent momentum, as investors have been disappointed with the company’s slower-than-expected progress in AI compared to market peers.
With its valuation now more de-risked compared to its peers and past performance, I think this could be a solid buying opportunity for investors at these lower levels. AMD is poised for strong growth in the data center segment, particularly with its AI-optimized offerings, and is likely to continue benefitting from long-term industry trends—even if the gaming segment remains weak.
