What's Going on With AMD Stock?

For the gaming segment, there’s no quick fix. AMD’s gaming GPU business has been far behind Nvidia for many years, and new product launches this year are unlikely to dramatically change the story. The semi-custom chip business, which provides chips for the major game consoles, isn’t going to rebound until the next generation of consoles launch.

The embedded segment is particularly disappointing, given how much AMD spent to acquire Xilinx. The embedded segment generated $3.6 billion in revenue and $1.4 billion in operating profit last year, compared to a $35 billion price tag for Xilinx. So far, it’s looking like AMD may have overpaid.

AMD stock isn’t overly expensive based on adjusted earnings, with a price-to-earnings ratio of about 33. However, a few things are important to remember.

First, the data center CPU and PC CPU businesses are almost certain to slow down. The PC market in particular is sluggish, and rival Intel has been getting more aggressive about stabilizing its market share as it looks to turn itself around. AMD stock isn’t expensive, but it’s not cheap either. A growth slowdown could push the stock lower.

Second, investors shouldn’t discount the possibility that AI is a massive bubble and that the “tens of billions of dollars” long-term estimate from AMD for its AI chip business will never materialize. If AMD’s AI chip business doesn’t accelerate from here, a major component of the company’s growth story collapses.

All that being said, AMD will remain highly competitive in its core data center and PC CPU businesses, regardless of what Intel does. The company’s products are great, and the era of Intel dominating those markets appears to be over. AMD makes sense as a long-term investment, but in the short run, the stock could face more challenges in 2025.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Intel, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

What’s Going on With AMD Stock? was originally published by The Motley Fool