The semiconductor industry remains one of the most dynamic and competitive sectors in the global economy. Advanced Micro Devices (AMD) and Nvidia have long been fierce rivals, each vying for dominance in the data center and AI-driven computing space.
While AMD has made notable strides in expanding its market share, its stock performance in early 2025 has left investors with mixed feelings. Despite strong revenue growth and expanding margins, AMD continues to lag behind Nvidia, which has solidified its lead in the data center segment.
To better understand the current state of the market, financial strategists from Fibonachis shed light on the factors driving AMD’s underperformance, its growth prospects, and whether the valuation gap between AMD and Nvidia is justified.
AMD’s Struggles in a High-Stakes AI Market
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The AI revolution has turned the semiconductor industry into a battleground, with data center GPUs leading the charge. In its latest earnings report, AMD posted a 24% year-over-year revenue increase in Q4 2024, with data centers accounting for more than half of this growth. More specifically, AMD’s data center segment surged by 69% year-over-year, driven by demand for its Instinct MI300X GPUs and EPYC server CPUs.
However, while 69% growth is impressive, it has not been enough to satisfy investor expectations. Analysts had initially projected the MI300 series to generate $11–$12 billion in revenue by 2025, but revised forecasts have slashed these estimates by half. This downward adjustment has dampened enthusiasm for AMD’s AI prospects, especially in comparison to Nvidia, which continues to dominate the space.
Beyond the data center segment, other areas of AMD’s business face additional headwinds. The PC and gaming segments remain weak due to broader market trends, and global supply chain challenges could pose further risks. Additionally, geopolitical uncertainties and potential tariffs on China, Canada, and Mexico could impact AMD’s global sales, further complicating its outlook.
AMD’s Improving Margins Offer Some Optimism
Despite its stock price decline, AMD’s improving margins signal that the company is making meaningful progress. Over the past decade, AMD has steadily expanded its margins, though a recent dip due to weak consumer demand in personal computers and gaming temporarily reversed this trend.
However, in Q4 2024, AMD’s operating margins rebounded to 11%, a five-percentage-point increase compared to the previous year. If this trend continues, AMD’s margins could surpass 20% on a trailing 12-month basis by the end of 2025 or early 2026. The company’s ability to scale its data center business and accelerate product launches—such as the Instinct MI350 GPUs—could expand further margin. AMD’s recent acquisition of server maker ZT Systems also underscores its commitment to strengthening its position in the enterprise market.
Nvidia’s Dominance Remains Intact
One of AMD’s biggest hurdles is Nvidia’s continued dominance. The AI GPU market has shown little room for challengers, and Nvidia remains far ahead in terms of market share, technology, and profitability.
Nvidia’s Q4 2024 revenue surged nearly 80%, with data center revenue alone growing by 93%. These figures dwarf AMD’s data center growth, reinforcing Nvidia’s stronghold on the industry. Additionally, Nvidia’s earnings per share (EPS) estimates have been revised upward over the next three years, while AMD’s have been revised downward. Specifically, AMD’s EPS estimates have dropped by 7.8%, 10.1%, and 15% for the next three years, while Nvidia’s have increased by 1.5%, 2.7%, and 5%, respectively.
Given this backdrop, investors must ask: why choose AMD at a forward P/E of 15x with a PEG ratio of 0.5x when Nvidia, the clear market leader, trades at a forward P/E of 19x with a PEG of 0.7x? Without a clear competitive advantage, AMD’s valuation remains a tough sell.
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Is AMD a Buy, Hold, or Sell?
Despite its challenges, Wall Street analysts remain cautiously optimistic about AMD. Among the 37 analysts covering the stock, 25 have a bullish rating, 11 remain neutral, and only one is bearish. The average price target for AMD sits at $147.88 per share, implying a potential upside of 53% from its current trading price.
While this suggests a favorable long-term outlook, the near-term risks cannot be ignored. The key factors that will determine AMD’s trajectory include the performance of its MI300X GPUs, further margin improvements, and its ability to expand in the enterprise market through acquisitions and new product launches.
Final Thoughts: The Valuation Gap Between AMD and Nvidia
AMD continues to show resilience in the face of strong competition, particularly through its expanding data center business and margin recovery. However, it still struggles to convince investors that it can meaningfully close the gap with Nvidia, which remains the undisputed leader in the AI GPU space.
While AMD’s stock offers long-term potential, the market currently favors Nvidia, as evidenced by earnings revisions, revenue growth, and investor sentiment. For AMD to become a more compelling investment, its valuation would need to become significantly more attractive relative to Nvidia’s, or the company would need to deliver stronger-than-expected growth in key areas. Until then, Nvidia continues to set the standard in the semiconductor industry, leaving AMD with an uphill battle to gain ground.
