Where Will AMD Stock Be in 3 Years?
AMD’s stock has been a disappointment to investors over the past three years, declining by 5% compared to the impressive gains of 36% made by the PHLX Semiconductor Sector index. Advanced Micro Devices’ (NASDAQ:AMD) reliance on personal computers and gaming markets for revenue has weighed heavily on its share price, with the company missing out on the artificial intelligence (AI) gravy train thus far. Its data center graphics card sales have been disappointing, with rival NVIDIA building a near-monopoly in this space.
The PC Market Recovery
However, there is hope that AMD’s fortunes may change over the next three years. The PC market, which endured double-digit declines in 2022 and 2023, has started to stabilize in 2024, with shipments witnessing a 0.8% increase, according to market research firm IDC. What’s more, the PC market is expected to record 4.3% growth this year, driven mainly by a 5.1% improvement in sales of commercial PCs.
This growth is expected to be fueled by several factors, including the end of support for Windows 10 in October this year and the growing adoption of AI-capable PCs. IDC forecasts that the PC market could clock an annual growth rate of 1.4% through 2028, with sales of AI PCs expected to grow at a much faster pace. Canalys expects that AI PCs will account for 60% of the overall PC market by 2027, compared to just 19% last year.
AMD’s Positioning in the Market
AMD is well-positioned to capitalize on this opportunity, with several key developments indicating its potential for growth. The company recently announced that PC giant Dell Technologies will use AMD’s CPUs in its commercial offerings, marking a significant milestone for the chipmaker. Furthermore, AMD’s AI-capable CPUs will power over 100 commercial PC platforms in 2025.
This development is particularly important given AMD’s consistent market share gains against rival Intel. The company controlled 23.9% of the client CPU market at the end of the third quarter of 2024, up from 19.4% in the year-ago period, according to Mercury Research. This market share gain explains why AMD’s revenue from the client CPU segment increased by 29% year over year in Q3 2024.
Data Center and Gaming Catalysts
AMD’s data center business was another solid performer in Q3 2024, with revenue rising 122% year over year to $3.5 billion. This growth is expected to continue over the next three years, driven by improving demand for its data center graphics cards and the company’s increasing share of the server CPU market.
In fact, AMD forecasts that its total addressable market (TAM) for data center AI chips will grow at an annual rate of 60% through 2028 to reach an annual revenue of $500 billion. While AMD is currently a small player in this space, with expectations of generating more than $5 billion in revenue from sales of data center graphics cards in 2024, the company’s improving market share and strong growth prospects make it an attractive investment opportunity.
The Gaming Segment
AMD’s gaming business could also experience a turnaround over the next three years. The company manufactures semi-custom chips for Microsoft and Sony’s gaming consoles, and rumors suggest that AMD will remain the supplier for these companies’ next-generation consoles. If true, this would provide a significant boost to AMD’s gaming revenue.
The company has already pointed out that its gaming revenue was down 69% year over year in Q3 2024 due to reduced demand for semi-custom chips used in gaming consoles. With the new console generation expected to launch soon, investors can expect a potential turnaround in this segment.
Earnings Growth Estimates
Consensus estimates put AMD’s expected 2024 earnings at $3.33 per share. Analysts forecast that the company’s bottom line could increase at an annual rate of around 45% for the next couple of years, driven by growth drivers such as the PC market recovery and data center segment expansion.
There is a good chance that AMD could sustain healthy growth rates in 2027, making it an attractive investment opportunity for those looking to invest in semiconductor stocks. As the company continues to position itself for growth, investors may want to consider adding AMD to their portfolios.
Conclusion
In conclusion, while AMD’s stock has been a disappointment over the past three years, there are several catalysts that suggest its fortunes could change soon. The PC market recovery, data center segment expansion, and potential turnaround in the gaming business make it an attractive investment opportunity for those looking to invest in semiconductor stocks.
While no one can predict with certainty where AMD’s stock will be in three years, the above factors indicate a strong likelihood of growth. As investors continue to monitor AMD’s progress, they may want to consider adding this stock to their portfolios for potential long-term gains.
Final Thoughts
As the tech industry continues to evolve and grow, companies like AMD are poised to benefit from the increasing demand for AI-capable PCs, data center graphics cards, and gaming consoles. With a strong market position, solid growth prospects, and attractive valuations, AMD is an investment opportunity worth considering.
In light of this, investors may want to keep a close eye on AMD’s stock performance over the next three years. While no one can predict with certainty where its stock will be in 2027, the above factors suggest that it has significant growth potential.