Adam Spatacco, The Motley Fool
5 min read
In This Article:
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Nvidia remains the top player in data center chips, but AMD is scaling up at an impressive pace.
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Partnerships with the likes of Oracle, Microsoft, and Meta Platforms should give it a big boost.
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Despite the chipmaker's encouraging progress, its shares still remain historically cheap.
Semiconductor stocks have been some of the biggest winners of the artificial intelligence (AI) revolution. It makes a lot of sense, too. AI chips are the brains that power and train generative AI models, helping businesses build new products and services at warp speed -- ushering in a new wave of productivity, efficiency, and automation.
For the most part, however, one name emerges more often than others in the chip realm. Obviously, I'm talking about Nvidia. I can't deny that what Nvidia has achieved over the last two years isn't impressive. Don't get me wrong -- I'm very happy to be an investor in Nvidia stock. But as a long-term investor, I'm always looking for opportunities beyond the mainstream.
Enter Advanced Micro Devices (NASDAQ: AMD). With a share price decline of 31% over the last year, AMD may not look like your cup of tea. However, I'd encourage you to keep an open mind. Let's explore how AMD is making inroads in the AI chip landscape, and why now looks like a lucrative time to buy the stock hand over fist.
AMD reports its financials across three business segments: Data center, client and gaming, and embedded. The data center segment competes directly with Nvidia, and recent trends in this business unit have really caught my eye.
The table below breaks down AMD's data center financial profile over the last year. Over the past year, AMD has scaled its AI data center business considerably. All the while, operating profit margins have been expanding -- signaling that AMD is able to fulfill demand and build its chip business in a profitable way.
|
Data Center Segment |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
Q1 2025 |
|---|---|---|---|---|---|
|
Revenue (in billions) |
$2.3 |
$2.8 |
$3.5 |
$3.8 |
$3.7 |
|
Revenue growth (year over year) |
80% |
115% |
122% |
69% |
57% |
|
Operating income (in millions) |
$541 |
$743 |
$1,000 |
$1,200 |
$932 |
|
Operating margin |
23% |
26% |
29% |
30% |
25% |
Data source: Investor Relations.
One thing to call out is that over the last six months, it may look like AMD's chip business is beginning to show some signs slowing. I wouldn't be caught up in that idea, though. First, the semiconductor industry tends to be cyclical. Moreover, Nvidia launched its newest graphics processing unit (GPU) architecture (Blackwell) during the fourth quarter, which likely served as some form of a headwind for AMD.
