Will AMD Experience Significant Growth in 2025?
With how successful Nvidia has been as an investment, it's only logical to explore other companies in the same sector and see if they have potential for growth. Advanced Micro Devices (AMD) is another contender, boasting a substantial range of graphics processing units (GPUs) used for creating artificial intelligence (AI) models.
Despite being in the second spot behind Nvidia, could AMD surge in 2025?
AMD reported its best quarter in two years recently
Beyond focusing on the GPU market like Nvidia, AMD is a more versatile enterprise. It delves into central processing units (CPUs) for data centers and PCs, and it also has an embedded processor segment that produces field programmable gate arrays (FPGAs), utilized in various industrial applications.
As AMD's diversification differs from Nvidia's, its past performance has been relatively tame. While Nvidia's revenue has skyrocketed since 2023, AMD's revenue has mainly stayed the same.
However, AMD's financial stagnancy is more due to its diverse portfolio rather than its second-place GPUs. Numerous quarters have shown AMD's data center revenue expanding rapidly. In Q3 of its 2024 fiscal year, revenue increased by 122% year-over-year. Yet, its other segments had mixed results.
Client revenue, encompassing AMD's hardware for PCs, increased by 29%, showcasing a good sign for AMD, as this part has struggled in previous quarters. Regrettably, its gaming and embedded segments saw a decrease of 69% and 25% year-over-year, respectively. Though these rollercoaster results led to a 18% increase in revenue year-over-year for AMD, making it the fastest growth since 2022.
But that's just the beginning. Analysts expect AMD's sales to increase by 27% year-over-year in 2025, and earnings per share (EPS) to surge by an impressive 54%. During its Q3 conference call, AMD's CFO Jean Hu highlighted the strength in its data center and client business as major drivers for 2025 and mentioned that the embedded processor business is poised for a rebound.
These aspects will be crucial to monitor in 2025, but does that all add up to a stock that's prepared for a major ascent in 2025?
AMD is already quite expensive
Despite playing second fiddle to Nvidia in the GPU market, AMD still commands a premium price from the market. AMD stock trades at 38 times forward earnings, being its cheapest all year.
Although that might seem like an affordable tag compared to the rest of the year, Nvidia still trades at 45 times forward earnings.
So, investors should contemplate: Is it wiser to invest in AMD over Nvidia after all? Given that Wall Street analysts estimate Nvidia's revenue to grow by 51% next year, accompanied by a 50% rise in EPS, these projections are relatively similar, at least from an EPS perspective. However, Nvidia's revenue growth trumps AMD's significantly.
Considering this, I think AMD could be a prosperous stock in 2025, given its strong growth factors. Nonetheless, the stock is already quite expensive (38 times forward earnings is more expensive than many of the tech giants) and offers the same level of growth as the undisputed market leader in GPUs.
As a result, I believe investing in Nvidia is a better choice for 2025. Nvidia has greater exposure to the trends fueling both stocks' growth and less exposure to the segments burdening AMD. In a nutshell, despite AMD being a reputable stock for 2025, Nvidia still seems to be the superior choice.
Given AMD's strong growth factors and analyst predictions of a 27% increase in sales and a 54% surge in EPS in 2025, it presents an attractive investment opportunity in the finance sector. However, considering its premium price tag of 38 times forward earnings, investors might want to consider the value for money they are getting, compared to competitors such as Nvidia.
In light of Nvidia's projected revenue growth of 51% and a 50% rise in EPS, investors may find it more prudent to allocate their money towards Nvidia, as it offers a similar growth potential at a potentially more reasonable price, with less exposure to segments that might burden AMD's growth. This strategic investment decision in Nvidia could prove to be a smart move in the realm of money management and securing future gains in the investing world.
