Is AMD Stock a Buy?
Last year, the PC market suffered a downturn triggered by steep rises in inflation. This led industry leaders like Advanced Micro Devices (NASDAQ: AMD) to experience a stock tumble of 55% in 2022.
Global PC shipments sunk 28.5% in the fourth quarter of 2022 and 16.2% for the year, according to research from Gartner. Consumers also pulled back on purchasing PC components such as graphics processing units (GPUs), with worldwide shipments of the devices plunging 42% last year.
However, AMD has enjoyed a strong recovery in 2023, with its shares up 52% year to date. AMD has been the focus of many headlines in recent months, thanks to its data center growth and potential in artificial intelligence (AI). As a result, you might be wondering if now is the time to buy AMD stock. Let's assess.
AMD has a history of impressive growth
AMD shares have soared 842% in the last five years and over 3,700% in the last decade. Meanwhile, the company's annual revenue has increased by 264% to $23.6 billion since 2019, with operating income rising 180% to $1.3 billion. The tech-giant's vast development has come as its hardware has swiftly grown in demand, largely driven by the rise of people building custom PCs for activities like gaming and video editing.
The launch of AMD's Ryzen series of consumer processors (CPUs) in 2017 put the company on the map and has helped it steadily steal market share from Intel. Since AMD released its line of Ryzen CPUs in the first quarter of 2017, the company's market share has grown from 18.1% to 35.2% in Q4 2022. In the same period, Intel's market share has fallen from 81.9% to 62.8%.
In addition to success in consumer products, AMD has grown its semi-custom business, providing processing and graphics power through its system on a chip (SoC) for other tech-companies' devices. For instance, AMD held an 83% market share in game console processors in Q2 2022, thanks to it exclusively supplying its SoCs to Sony's PlayStation 5 and Microsoft's Xbox Series X|S.
A long list of lucrative partnerships
AMD stumbled in 2022 amid PC market headwinds. However, its immense success in the industry has given it the power and resources to expand its business to less consumer-reliant areas of tech through partnerships with other companies.
Alongside collaborations with Sony and Microsoft in console gaming, AMD has powered multiple virtual reality (VR) headsets with its custom chips. The company has supplied its chips to the Meta Quest line of headsets, HTC's Vive, and Microsoft's Windows Mixed Reality.
According to Grand View Research, the VR market was valued at $22 billion in 2021 and is projected to expand at a compound annual growth rate of 15% through 2030. Meanwhile, Apple is expected to launch its first mixed-reality headset in 2023, which will likely ramp up competition and demand for AMD's chips.
Moreover, AMD sees increasing success in data centers. In fiscal 2022, its data center segment reported a revenue rise of 64% year over year to $6 billion, with operating income climbing 86% to $1.8 billion. The company launched its Genoa series data center chips in November 2022, beating Intel's competing Sapphire Rappids chips, which experienced two years of delays and was eventually released in January 2023. Benchmarks also revealed the Genoa server chips outperformed Intel's versions in "general purpose workloads," according to Bernstein analyst Stacy Rasgon.
With cloud leaders such as Microsoft's Azure, Alphabet's Google, and Oracle signed on as clients for AMD's Genoa chips, the potential is high for the company to continue catching Intel.
AMD has steadily grown its list of tech partnerships over the years, allowing it to expand its position in several lucrative industries such as gaming, VR, and data centers. In addition, the rise of artificial intelligence will likely see more companies turn to AMD for its GPUs, which are needed to run and develop AI software.
As these markets develop, the company could see substantial gains over the long term. Alongside a history of stellar growth, AMD's stock is a screaming buy right now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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, Apple, Intel, Meta Platforms, and Microsoft. The Motley Fool recommends Gartner and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
