ChatGPT exploded onto the scene in 2023 and with it came a rush into semiconductor stocks. The AI trade was hot that year, but we saw a bit of bifurcation in 2024, as the “haves” and the “have-nots” were separated. Unfortunately for Advanced Micro Devices Inc. (AMD), it found itself on the latter list. But it may be worth a closer look for investors here, suggests Bret Kenwell, US investment analyst at eToro.
AMD shares languished through 2024 despite an otherwise strong year for equities. A lot of investors are seemingly waiting for AMD to make the turn and show some signs of life, but that has yet to happen. Will that change in 2025?
Despite the stock’s poor performance in 2024 — down 13.8% through Dec. 15 — the company’s fundamental situation continues to improve. According to Bloomberg estimates, earnings and revenue are forecast to jump 25.2% and 13.1% in 2024, respectively, while free cash flow is expected to jump from $1.1 billion to $2.8 billion.
Advanced Micro Devices Inc. (AMD)
In 2025, analysts expect all three metrics to accelerate significantly, with adjusted earnings forecast to climb more than 50%. Further, free cash flow is expected to climb to a range of $6 billion to $7 billion (depending on which consensus estimate you look at). Lastly, a bump in margins — with estimates calling for operating margins to increase from roughly 11.8% in 2024 to more than 20% in 2025, according to Bloomberg — would only act as a sweetener for bulls.
The expectations are clear: AMD should see meaningful growth in its top- and bottom-lines, allowing more cash to trickle down through its financials. So, why isn’t the market front-running AMD’s expected successes?
There is a clear appetite for AI-related hardware from big tech. We’ve seen this with Nvidia Corp. (NVDA), and most recently with Broadcom Inc. (AVGO). While that may be true, it’s also hard — maybe impossible — to argue that demand for Nvidia’s chips isn't sapping some of the energy away from AMD.
In many ways, that’s an ongoing risk. That said, there is a place for AMD’s products, too, and the shift brought on by AI isn’t a multi-quarter transition…it’s a multi-year play with robust demand.
AMD stock was a lot less tempting north of $200 a share. However, it was recently trading near $125, down about 45% from its 52-week high. It may be worth a closer look, particularly with shares trading at 24 to 25 times consensus 2025 earnings expectations — a valuation that has generally been supportive in the past.
