The American technology business Advanced Micro Devices, Inc., or AMD for short, was established in 1969 and is mostly recognized for its graphics processing units (GPUs) and central processing units (CPUs). One would assume that the business is doing well given its 18% year-over-year sales growth in 2024 (it generated $6.8 billion in Q3 2024) and the almost overwhelming approval of its increasingly tech-savvy customer base. The market, however, has a different perspective; since early March of 2024, AMD’s stock value has been declining.
This article provides a more thorough examination of this phenomenon, examining why it occurs and what lies next.
First, we should look at what segments bring in the most revenue for AMD. Out of the $6.8 billion, Data Centers bring in $3.5 billion, which is up 122% year-over-year, whilst their client-side CPUs, primarily the ‘Zen 5’ processors and other embedded chips and GPUs, bring in the rest.
Even though enthusiasts praise AMD’s products in the gaming industry, AMD’s position is rather bleak when we look more closely at its client-side segments. According to the Steam Hardware & Software Survey from November 2024, AMD’s GPUs make up just 16.24% and CPUs make up 36.68% of all respondents’ computers. The general public still favors the products of other businesses over AMD, as seen by the 75.76% market share of Nvidia’s GPUs and the 63.32% market share of Intel’s CPUs. However, it is worth mentioning that when looking at Steam’s survey from 2020, AMD took a share of 13.38% and 18.75% respectively, meaning that there could be a slight shift in trends in favor of AMD’s products. This, however, doesn’t show us the big picture.
When we look at the global trends of personal computers, worldwide shipments saw a drop in year-on-year growth during the pandemic, and only since Q1 of 2023 have the total amount of shipments seen any recovery, experiencing YoY growth below 5%.
The AI market has grown at an estimated CAGR of 30.3%, while the PC market has been declining relative to that. With an anticipated CAGR of 24%, the data center accelerator market is showing a similar trend. We can now understand why AMD’s stock may be underperforming given that the PC market, which accounts for roughly half of its income, is at best stagnant. This leaves less opportunity for AI and data centre businesses, which are expected to develop at extremely high rates.
To put things in perspective, AMD and Nvidia have very different market segmentation strategies. For Nvidia, data center revenue accounts for 88% of overall income, but for AMD, it makes up just slightly more than 50%. People are therefore more inclined to invest in the business since their money is more exposed to a thriving industry.
So, what’s next for AMD? Their situation in the AI market is comparable to that of the PC market in that they release their products too late, although offering the best value. Recent releases of AMD’s MI325X and Nvidia’s H200 serve as excellent examples. Because of their respective delivery schedules (the H200 will be launched in Q2 2024, and the MI325X in Q4 2024), Nvidia’s product is still outperforming AMD’s despite AMD’s product being more powerful and offering superior specifications. This gives Nvidia an advantage when it comes to getting orders from major cloud service providers. However, there is a possibility of AMD breaking this constant cycle of releasing a better product at a later date and as a result, taking a bigger share of the respective market – just like they are doing in the PC market.
– Patriks Pauls Kalejs