Over the past few years, Nvidia (NVDA) has reigned unchallenged as the backbone of artificial intelligence, wielding near-monopolistic power in the data center GPU market and commanding Wall Street’s attention. However, the story over the past few months has taken a twist. Advanced Micro Devices (AMD), long seen as the perennial runner-up in AI GPUs, is finally beginning to carve out a role with its Instinct MI300/350 family.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Now, investors are asking whether we’re witnessing the start of a true two-player market—or if AMD’s rally since April is more illusion than reality, fueled by temporary shortages and overly optimistic forecasts.
What’s certain, however, is that AMD once again trades at a premium multiple—even higher than Nvidia’s in most cases. Factoring in the higher likelihood of multiple compressions, my view on AMD has turned more measured. I currently rate the stock a Hold, for the following reasons…
The Challenge of Taking on Nvidia
Despite AMD shares’ erratic performance over the past year—and especially up until at least April—AMD has undeniably been an excellent company in terms of execution and scale. However, the “burden” of competing with Nvidia at the center of the AI market has hurt perceptions of its value and added more volatility to the stock.
While Nvidia has dominated the AI data center GPU market with the H100 and H200 families (and is now rolling out its Blackwell architecture), AMD has been trying to compete with its MI300/325/355 (GPU Instinct) line. The challenge has been that Nvidia’s consolidated CUDA ecosystem and mature software have earned massive support from hyperscalers such as AWS (AMZN), Microsoft (MSFT), and Alphabet (GOOGL), while AMD still struggles with software optimization and building a developer ecosystem for its chips.
To break Nvidia’s monopoly in supplying GPUs for AI training, AMD pinned its hopes on the MI300/MI355, aiming to prove that its hardware can handle hyperscaler workloads at scale.
Throughout 2024 and into early this year, visibility for AMD chips was low. The MI325, released in Q1 2024, was poorly received—it was a transitional product far behind Nvidia’s H100. The MI355, launched recently in June, was different. It showed significant performance gains over the MI325 and received better feedback from hyperscalers.
More importantly, it arrived during a supply bottleneck for Nvidia, which appears to have pushed its ASP (average selling price) higher than initially projected. In other words, this should continue to support more robust margins and indicates that AMD has pricing power—it can charge premium prices and still close deals.
For example, in Q2, AMD’s data center revenues hit $3.2 billion, up 14% year-over-year, thanks to MI350 adoption. Gross margins would have been 54% if not for MI308-related inventory write-downs that dragged them down to 43% for the quarter.
AMD’s Top-Line Projections
Benefiting from the positive reviews of the MI350, AMD has given the market the impression that it can indeed capture pricing power similar to what Nvidia has been enjoying. After all, with hyperscalers projecting nearly half a trillion dollars in CapEx over the next three years, capturing a larger slice of the pie that currently goes largely to Nvidia doesn’t seem unrealistic.
Three months ago, the market projected Q3 revenues at $8.12 billion—now the estimate is about $600 million higher. For Q4, revenues were projected at $8.6 billion back then, but today the expectation is around $9.14 billion. On a consolidated basis, the market now expects AMD to finish 2025 with revenues of $33 billion, an increase of 28%, compared with the 23% growth projected at the beginning of this year.
For the longer term, current projections show a 2027 CAGR of 19%, whereas at the start of fiscal 2025, the three-year CAGR was projected at 17.7%. It may not seem like a huge change, but it has been enough to offset the more subdued bottom-line expectations—helping to explain the triple-digit growth since the beginning of April.
At the beginning of the year, EPS was projected to reach a CAGR of 49% over the next three years, but it is now reduced to 37.8%—the main reason I attribute to AMD’s 50% drop between September 2024 (Q3 2024) and March of this year (Q1 2025).
Going forward, I believe that the trend of revenues coming in stronger than anticipated should translate into better margins, reflecting higher ASPs. This makes EPS projections appear conservative, in my view, and provides room for a longer-term re-rating—even though we’ve already seen some of this play out over the last three months.
When Premium Meets Expectations
Despite recent bullish developments for AMD and its stock, the company has been trading at a forward earnings multiple of 45.4x—not only 95% above the industry average, but also higher than Nvidia’s 41.7x, the undisputed leader in GPU and AI data centers. Even when applying AMD’s 30.8% long-term (three- to five-year) EPS CAGR, the PEG ratio of 1.5 remains higher than Nvidia’s 1.4 (based on a consensus long-term EPS CAGR of 29.8%).
I feel reluctant to go bullish on AMD when it trades at a premium to Nvidia, which, in my view, has a clear moat and still offers potential for profitability growth on a larger—or at least equal—scale than AMD going forward, even with an already extremely high bar.
That said, I would venture that, at least in the short- to medium-term, the recent rebound in AMD’s stock price seems to be a reasonable market reaction, effectively pricing in the most optimistic scenario, particularly in terms of top-line growth and margin improvement.
Is AMD Stock a Buy, Hold, or Sell?
The consensus among analysts for AMD is mostly bullish: 24 out of 35 analysts are bullish, while the remaining 11 are neutral, with no bearish analysts. Although several analysts have raised their price targets following the latest earnings, the average stock price target for AMD stands at $183.45, implying a potential upside of ~10% over the next twelve months.
Why AMD Looks Like a Hold
Investor sentiment has turned notably more positive on AMD, with the MI350 finally showing it can compete with Nvidia’s chips and driving the stock’s recent rebound. A tide of upward revisions does make the outlook more favorable, but I question how much upside is left from here, since valuation looks, in my view, very stretched—and increasingly at risk of multiple compression. With little margin of safety at current levels, I’m not comfortable initiating a long position, so I rate AMD a Hold for now.