Here’s why AMD is well positioned to benefit from the AI infrastructure buildout.
Advanced Micro Devices (AMD -5.22%) recently introduced its latest artificial intelligence (AI) chip as it looks to make a dent in Nvidia‘s (NASDAQ: NVDA) huge market share. While AMD, as it is commonly called, has seen its AI-related revenue soar this year, it’s still just a fraction of the revenue generated by its rival’s graphic processing units (GPUs).
The question is, can this new chip help AMD become the next big AI winner?
An AI winner or AI afterthought?
AMD has steadily increased its revenue for data center GPUs this year from an original forecast of more than $3.5 billion to most recently $4.5 billion. However, that pales in comparison to the $26.3 billion in data center revenue that Nvidia generated just last quarter.
The semiconductor company is hoping that its newest chip, called the Instinct MI325X, will help close some of the large share gap in GPUs between the two companies. AMD said the new chip offers industry-leading memory capacity and bandwidth and more compute power than Nvidia’s H200 chip. However, it is notable that the comparison is to Nvidia’s Hopper architecture and not its newest Blackwell architecture. For its part, Nvidia claims Blackwell can have 30 times the inference performance as Hopper.
AMD said the new chip will begin production in Q4 and be ready for widespread shipment in early 2025. It said the chips will be available through a wide set of platform providers, including Dell, Super Micro Computer, and Hewlett Packard Enterprise, among others. Like Nvidia, AMD is moving its AI chip development cycle up to about once a year.
Image source: Getty Images.
The company also introduced some networking solutions, including a new NIC (network interface card) and DPU (data processing unit). NICs are needed to connect to a network, while DPUs handle data transfers, compression, and storage. It also introduced a new line of CPUs (central processing units) called EPYC 5th Gen, which it said has been designed to accelerate data center, cloud, and AI workloads.
Meanwhile, AMD said it is adding some powerful new features and capabilities to its ROCm open software stack. While AMD has produced powerful GPUs in the past, Nvidia’s CUDA software has long been a huge advantage for the company, since developers have long been trained to program GPUs through its platform. This has created a wide moat for Nvidia that AMD and others have struggled to compete against.
AMD did not announce any new customers for its new products, but representatives from Alphabet, Meta Platforms, Microsoft, and OpenAI did discuss how they are using AMD at the event. Meta noted that it is “working on several training workloads with AMD.”
Is it time to buy AMD stock?
There was nothing from AMD’s announcement that indicates it will take any meaningful share from Nvidia in the near future. However, the AI infrastructure market is expanding so quickly and Nvidia only has so much supply capacity, that there will still be a nice opportunity for AMD to grow its AI chip business. In addition, companies will want to keep Nvidia honest and have at least a second GPU supplier, so that it does not become a complete monopoly.
There were also some comments from customers that suggest AMD’s GPUs are being given some more important workloads than in the past. This combined with the strong overall market for GPUs should see the company continue to produce solid AI revenue growth, just off a much lower base than Nvidia. And at the end of the day, AMD doesn’t need to take a ton of share from Nvidia to be an AI winner. Going from a 4% market share to 7% in a widely expanding market would still be a lot of growth.
From a valuation standpoint, AMD currently trades at a forward price-to-earnings (P/E) ratio of about 30 based on 2025 analyst estimates. That’s a fair valuation given the potential growth the company has in front of it from AI.
AMD PE Ratio (Forward 1y) data by YCharts
AMD is likely not going to be the next Nvidia, but it is a solid secondary option in the space for investors who want to diversify their AI stock holdings. As long as the market for AI infrastructure is growing strongly, the stock should be a solid performer.
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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
