Corporate America just kicked off a new quarterly earnings season. Over the next few weeks, hundreds of companies will report their latest financial results, but Wall Street will be most focused on those leading the artificial intelligence (AI) race.
Advanced Micro Devices (NASDAQ: AMD) will release its report for the fourth quarter of 2024 on Tuesday, Feb. 4. The company has become a worthy competitor to Nvidia in the market for data center graphics processors (GPUs), which are critical for AI development, and investors will be eager for an update on its progress.
AMD stock is attractively valued relative to its AI rival, so should investors buy it ahead of next week's report?
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AMD could be Nvidia's biggest threat in the GPU space
At the end of 2023, AMD launched its MI300X data center GPU in a bid to capture some of Nvidia's incredible 98% market share at the time. The MI300X won several top AI customers, including Microsoft, Meta Platforms, and Oracle, some of which yielded better performance and lower costs compared to using Nvidia's flagship H100.
AMD has since launched the MI325X to compete with Nvidia's newer H200, and in the second half of this year, it expects to start shipping the new MI350 series. The MI350 will be built on an entirely new architecture called CDNA (Compute DNA) 4, which will deliver 35 times more performance than CDNA 3 GPUs like the MI300X. CDNA 4 will rival Nvidia's new Blackwell architecture, which is currently the gold standard in AI.
But AMD is also the leading supplier of AI chips for personal computers -- a segment of the industry in which Nvidia doesn't currently operate. Over the next few years, AI workloads are going to shift from data centers to the devices we use each day, because it will lead to a much faster and more efficient user experience.
The widespread adoption of new AI models from developers like China-based DeepSeek could accelerate that transition. They deliver a new level of efficiency which means they require less computing power to run, making them ideal for devices like laptops and tablets.
This year, AMD says manufacturers like HP, Lenovo, and Asus will launch over 100 computing platforms fitted with its new Ryzen AI 300 Series chips. Expect to hear more about this exciting segment of AMD's business next week.
The numbers to watch on Feb. 4
In the near term, Wall Street will remain focused on AMD's data center business because it's now the company's largest source of revenue. During the third quarter of 2024, it brought in a record $3.5 billion which was a 122% increase from the year-ago period. Strong GPU sales were a big contributor to the result.
AMD CEO Lisa Su went into 2024 expecting GPUs like the MI300X to generate $2 billion in total revenue for the year. However, by the third quarter, her forecast had soared to $5 billion because sales were consistently exceeding expectations. If AMD tops that $5 billion number, it will be a sign that its competitive position continues to improve versus Nvidia. That's the first number investors should watch when the report is released next Tuesday.
The second number to look out for is GPU sales guidance for 2025. Investors will want to see significant growth over the 2024 result, and the near-term direction of AMD stock could hinge on Su's commentary surrounding the number.
Finally, AMD's gaming business will also be under the microscope. Its revenue plunged by 58% during the first three quarters of 2024 due to slowing demand for consoles like Sony's PlayStation 5 and Microsoft's Xbox, which are both powered by AMD's hardware. Gaming has therefore been a drag on the company's overall results, offsetting the strong growth from the data center segment.
A new generation of GPUs will start shipping to PC gamers everywhere early this year, so that could reignite the segment's revenue. Investors will want to see a clear update on that front.
AMD stock looks attractive at the current level
Based on AMD's trailing 12-month non-GAAP earnings per share (EPS) of $3, its stock currently trades at a price-to-earnings (P/E) ratio of 39.1. That's a 17% discount to Nvidia's P/E ratio of 47.1, which implies AMD stock is cheap relative to its AI rival.
The picture looks even better on a forward basis. According to Wall Street's consensus forecast (provided by Yahoo!), AMD's EPS could soar 54% to $5.13 during 2025, which places its stock at a forward P/E ratio of just 22.8.
In other words, the stock would have to climb by a whopping 71% over the next 12 months just to maintain its current P/E ratio of 39.1 -- assuming the company doesn't deliver even higher earnings than expected, which is a real possibility that could drive even further upside.
So, back to the big question: Is AMD stock a buy ahead of the Feb. 4 report? Given the company's enormous AI opportunity not only in the data center, but also in personal computing, the stock will probably be a great addition to any portfolio over a time horizon of five years or more.
It's unlikely one quarter alone will alter the company's long-term trajectory, so whether investors buy the stock before or after Feb. 4 probably won't impact their chances of earning a positive return over the next few years.
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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. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, HP, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
