Could AMD be the Nvidia of 2025?

When it comes to semiconductor stocks, it’s virtually impossible not to think about it Nvidia. Over the past two years, the company has become the undisputed leader among chip stocks, quickly moving to the forefront of artificial intelligence (AI) companies more broadly.

However, in my opinion, investors have been so eager to get in on Nvidia that they have essentially forgotten about other opportunities in the chip space. As 2024 comes to a close, I encourage investors to look around and consider what hidden opportunities may be emerging.

I will explain why investing in Advanced micro devices (AMD -2.83%) looks particularly tempting at the moment. Could AMD be Nvidia next year? I think so.

Is Nvidia really that far ahead of AMD?

On the surface, it seems obvious that Nvidia is way ahead of AMD in the AI ​​marathon. In the last 12 months, Nvidia generated a whopping $113 billion in revenue – almost five times that of AMD.

However, a look at where that revenue comes from might change your mind about AMD’s performance compared to its larger cohort.

In the table, I’ve broken down the annual revenue growth rates for AMD and Nvidia’s respective data center businesses:

Data source: Investor Relations.

Over the last year, Nvidia’s data center business has slowed significantly. At the same time, AMD’s data center business has gone from virtually zero to more or less the same growth rate as Nvidia.

Don’t get me wrong – I’m not going to promote the idea that Nvidia is in trouble. It’s hard to make a negative argument for a company that posts more than 100% growth every quarter.

However, my general point is that even though Nvidia is bigger than AMD, that doesn’t necessarily make it a better investment opportunity. I’ll detail how AMD has built such an impressive, competitive data center business and explore why 2025 could be a milestone year for the company.

Image source: Getty Images.

Why 2025 could be a pivotal year for AMD

Much of the reason for Nvidia’s tremendous growth in the data center business is that, until recently, the company had virtually no competition in the graphics processing unit (GPU) space. With the successful launch of AMD’s MI300 accelerator, Nvidia’s first-mover lead is finally hitting some headwinds.

Now you can counter my point by arguing that Nvidia’s next-generation Blackwell GPU architecture will help kill any chance of AMD dethroning the chip king. Keep in mind that many of Nvidia’s own customers, including Microsoft And Metaplatformsalso use AMD’s MI300 GPUs.

Additionally, keep in mind that these big tech giants in addition to alphabet And Amazon (both are also Nvidia customers) are also investing heavily in developing their own chips to move away from over-reliance on Nvidia.

Finally, keep in mind that AMD is also developing a successor GPU to the MI300 called the MI325X – which is scheduled to launch in 2025. Additionally, the company is targeting a market launch date for the MI400 architecture sometime in 2026.

My point? I don’t see Nvidia’s Blackwell launch as a major threat to AMD at all. AMD is driving innovation at an unprecedented pace, and considering that investment in AI infrastructure is expected to increase over the next few years, I see the introduction of the MI325X and MI400 as catalysts that can help AMD increasingly outperform Nvidia to take away market share.

Is AMD stock a buy right now?

At the time of writing, AMD is trading at a forward price-to-earnings (P/E) ratio of 29. In comparison, Nvidia’s forward P/E ratio is currently 34.

With Blackwell’s launch imminent, I can’t help but feel like expectations are going to rise for Nvidia. If the company fails to meet investors’ expectations, there could well be a panic-induced sell-off of the stock.

Given AMD’s significantly lower valuation compared to Nvidia, I think investors are overlooking the new GPU lineup in the next two years. The existing presence of the MI300, combined with the launch of the MI325X next year to compete directly with Blackwell, should help AMD continue to make headway against Nvidia – especially against its own customer base, which is already proving it is looking for alternatives GPU providers.

I think now is a lucrative time to buy AMD stock and prepare to hold on.