Predicting AMD's Stock Trajectory in the Next Five Years
In the rapidly growing data center AI accelerator market, Advanced Micro Devices (AMD) is gearing up to compete with industry leader Nvidia. The market is projected to expand at an annual rate of over 60% through 2028, generating over $500 billion in revenue by 2028.
AMD's strategy revolves around leveraging the competitive performance and cost-efficiency of its MI300 and MI350 series GPUs, coupled with its open-source ROCm software stack. The company's MI325X has already demonstrated an 8% training performance advantage over Nvidia's H200 GPU in MLPerf benchmarks, and the MI350 is projected to deliver 40% higher tokens-per-dollar efficiency. This is particularly appealing to cost-conscious enterprises and regions less dependent on U.S.-based technology.
While Nvidia maintains a commanding lead due to its continuous innovation in GPU architecture, energy efficiency, and a well-established software ecosystem, AMD's focus on performance-per-cost advantages and fostering an open ecosystem could potentially counter Nvidia's 80% market share. The growing importance of AI workload performance efficiency and energy optimization in hyperscale data centers aligns with AMD's roadmap.
However, Nvidia's dominant position is not without challenges. U.S. export controls could open opportunities for competitors like AMD to capture market share by serving markets or clients less impacted by these restrictions.
AMD's stock price, currently undervalued with a PEG ratio of 0.69, has seen a 61% increase since hitting a 52-week low on April 8. AMD is a potential AI stock for investors looking to buy a stock that could deliver healthy gains over the next five years. Under the assumption of trading at a discounted 25 times earnings after five years and hitting the estimated EPS of $10.57, AMD's stock price could jump to $264. If AMD can achieve an earnings growth rate of 15% for three years after 2027, its EPS could reach $10.57 by the end of the decade.
AMD's future in the data center segment looks promising. The company has unveiled its MI350 series of data center GPUs, claiming they pack 4 times more computing power than the previous generation. AMD's revenue in Q1 of 2025 increased by 36% year over year, and the data center revenue increased by 57% year-over-year in Q1. If AMD can carve out a 10% share of the data center GPU market by 2030, its data center GPU revenue could increase to $50 billion.
AMD seems on track to capitalize on multiple multibillion-dollar markets through 2030. The company has landed the $30 billion contract to manufacture the chip for powering Sony's upcoming PlayStation 6 console, and Microsoft's next-generation Xbox console is expected to be powered by AMD hardware. AMD's guidance for the current quarter indicates a 27% year-over-year increase.
In summary, AMD's competitive edge over the next five years will depend on advancing GPU performance, offering more cost-effective solutions, exploiting open software advantages, and capitalizing on geopolitical and regulatory factors that may constrain Nvidia, while Nvidia continues to innovate and capitalize on its strong brand and ecosystem presence in AI data centers.
- As AMD prepares to contest Nvidia in the data center AI accelerator market, investors may find AMD an attractive choice for investing, given the company's potential to deliver healthy returns due to its low PEG ratio and increasing stock price.
- The company's focus on performance-per-cost advantages and fostering an open ecosystem could potentially chip away at Nvidia's 80% market share, as the growing importance of AI workload performance efficiency and energy optimization in hyperscale data centers aligns with AMD's roadmap.
- Moreover, the future of AMD appears promising, not just in the AI accelerator market, but also in other multibillion-dollar markets such as gaming consoles, with AMD securing a $30 billion contract to manufacture chips for Sony's PlayStation 6 console.
