3 Things About AMD That Smart Investors Know
Advanced Micro Devices (NASDAQ: AMD) has featured in countless headlines over the past month. After plummeting 55% in 2022, the stock has shot up 26% since the start of the new year. The swift rise is owed to encouraging fourth-quarter 2022 results, where AMD's revenue rose 15.9% year over year to $5.6 billion, beating analysts' expectations by $80 million.
While the tech company suffered in recent months as an economic downturn led to reduced demand in the PC market, AMD has proven itself as a company to keep a close eye on with its growing market share in central processing units (CPUs) and data centers.
Here are three things the smartest investors know about AMD.
1. AMD has grown immensely over the long term
Even after accounting for the sell-off in 2022, AMD's stock has increased 624% in the last five years and 3,000% over the last decade. The stellar growth has come alongside annual revenue, which has soared 264% since 2019, hitting $23.6 billion -- and operating income, which has risen 180% to $1.2 billion.
AMD's success is primarily owed to the launch of its Ryzen series CPUs in 2017, which have helped the company consistently steal market share from Intel (NASDAQ: INTC). Since Q4 2016, AMD's market share in CPUs has skyrocketed from 17.8% to 31.3% in Q4 2022. Meanwhile, Intel's share has gone from 82.2% to 69.7% in the same period.
2. AMD has a lucrative data center business
As AMD continues to outshine Intel. Its recently launched data center chips are proving to be a fierce competitor. Intel's latest data center chips, Sapphire Rapids, launched in January after two years of delays. However, AMD's Genoa series was released in November 2022 and has outperformed Intel's offerings in benchmark comparisons. The achievement has built up anticipation for AMD's more powerful Genoa-X server chips launching later this year.
According to Grand View Research, the cloud industry -- some $370 billion in size as of 2021 -- will expand at a compound annual growth rate (CAGR) of 15.7% through 2030. AMD has already begun profiting from the burgeoning industry, with its data center revenue rising 63% to $6 billion in fiscal 2022. Meanwhile, operating income increased 86% to $1.8 billion.
Considering that AMD's Genoa chips already have cloud leaders, such as Microsoft's Azure, Alphabet's Google, and Oracle, signed on as clients, the company will likely profit from the market's growth well into the future.
3. AMD's crucial role in video game consoles
While AMD is best known for its PC offerings, it also has a powerful position in video game consoles. According to research firm IDC, the company holds an 83% market share in game console CPUs by exclusively supplying its system on a chip to Sony's PlayStation 5 and Microsoft's Xbox Series X|S.
Since Sony launched the PS5 in November 2020, it has delivered more than 28 million consoles worldwide. Meanwhile, the Xbox Series X|S has sold 20.2 million units in the same time frame. Both consoles have proven immensely popular, and AMD has profited from its partnership with both companies.
With previous console generations, Sony and Microsoft have released mid-generation spec bumps and slight redesigns to their consoles roughly three years after launch. For instance, the PS4 was released in 2013 and the PS4 Pro in 2016. The Xbox One launched in 2013, while the Xbox One S debuted in 2016, and the more powerful Xbox One X in 2017.
This year is right in the window for the companies to release more powerful versions of the PS5 and Xbox Series X|S. As a result, AMD could significantly boost revenue in the next one to two years as gamers upgrade their current consoles.
AMD stumbled in 2022, but it has reliably grown various aspects of its business over the long term, making its stock a compelling investment.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Intel, and Microsoft. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.
