The AMD Dilemma: Stock Sentiment vs. Impressive Fundamentals
Over the past decade, some constants have remained in my life: the struggle to stay hydrated amidst intense workouts, the steady rise of Nvidia’s (NVDA) stock, the consistent performance of AMD (AMD), and my ongoing battle with sleep deprivation. Fast forward to 2024, and while three of those constants have held true, AMD’s disappointing stock performance has raised eyebrows.
In 2024, AMD experienced a downturn of 17%, a stark contrast to Nvidia’s impressive 171% surge, Broadcom (AVGO) climbing by 107%, and the Nasdaq Composite (^IXIC) growing by 28%. It’s noteworthy that despite this downturn, AMD was still the ninth most popular stock among retail investors last year—Nvidia held the top spot. Retail investors reduced their average holding in AMD from 3.37% at the year’s start to 2.07% by year-end, prompting the question: Why such a decline in enthusiasm for AMD?
Several factors inform this sentiment, even as the company reports remarkable earnings growth and innovation in chip technology as relayed by AMD’s CEO, Lisa Su. Intel’s troubles add to AMD’s market opportunity, yet an underlying perception exists that AMD is struggling to keep pace in the AI sector, particularly compared to Nvidia. Wedbush analyst Dan Ives highlights that the perception of AMD’s growth potential is being overshadowed by competitors’ momentum, naming three key issues affecting AMD’s stock sentiment:
The Nvidia Effect: Nvidia’s new Blackwell chip is perceived to be outpacing AMD in AI applications, impacting AMD’s market share. The presentation of this chip at an upcoming CES keynote is anticipated to solidify Nvidia’s position in the mind of investors.
The Cloud Player Effect: Major cloud service providers like Amazon (AMZN) and Google (GOOG) have opted for custom chips from competitors such as Marvell (MRVL) and Broadcom. As highlighted by analyst Vivek Arya at Bank of America, these companies show a preference for specialized chips, limiting AMD’s expansion in this critical market sector.
Weak PC Sales Outlook: The prognosis for the PC market in 2025 appears grim, with some analysts suggesting a potential correction that could further compromise AMD’s financial estimates. This overshadowing sentiment is compounded by AMD’s recent guidance of fourth-quarter earnings per share falling 8% below consensus estimates, dampening investor confidence.
However, despite the market’s dim outlook, AMD’s fundamentals tell a more promising story. The recent launch of its AI chip, the MI300, generated $1.5 billion in sales in Q3 2024, marking the fastest product to reach $1 billion in sales in a single quarter for AMD. With projections for MI300 sales rising to $5 billion for 2024, and predictions reaching as high as $9.5 billion for 2025, AMD is positioned for substantial growth. Analysts estimate earnings growth could exceed 50% this year and, should demand for AI remain robust, potentially surge beyond 70%.
AMD’s stock currently trades at an attractive valuation compared to competitors—its trailing price-to-earnings growth (PEG) ratio sits at a low 0.31, compared to Nvidia and even the struggling Intel’s 0.55. This price weakness means AMD shares are trading almost 50% below their 52-week high, while rivals hit record levels.
Analysts are encouraged by AMD’s strategic focus on becoming the second major supplier of key accelerator solutions in the burgeoning AI market. Evercore ISI’s Mark Lipacis backs this perspective, noting the historical trend that one ecosystem garners 70-80% market value per computing era, positioning AMD uniquely to capitalize on its growing stake in AI workloads as it did with CPUs against Intel.
The takeaway for investors is clear: while AMD grapples with market perceptions and sentiment, the underlying fundamentals suggest that it may be undervalued. With major developments on the AI chip frontier and a strategic path that mirrors its historical successes, AMD’s potential growth story is one that discerning investors should carefully consider.