AMD Faces Challenges Despite Promising AI Future Amid Market Rally

NEW YORK, NY — Advanced Micro Devices (AMD) has seen its stock struggle over the past three years, declining approximately 10%, despite broader positive trends in the semiconductor market. On March 1, 2025, the semiconductor market cap stands at $162 billion, with AMD’s current price at $99.86.

Investors in semiconductor stocks have enjoyed gains recently; the VanEck Semiconductor ETF has surged nearly 80% over the past three years, significantly outpacing the S&P 500’s 38% growth. Yet, AMD has not shared the same fortune, leading many investors to question its future growth potential.

AMD CEO Lisa Su remains optimistic about the company prospects, noting that AMD is “on a steep long-term growth trajectory,” particularly in its data center AI franchise. Su forecasts revenues could escalate from $5 billion in 2024 to potentially “tens of billions” in the coming years. In the last quarter of 2024, AMD reported a growth rate of 24%, with projections for 30% growth this current quarter. If these numbers prove correct, they could provide the momentum needed for AMD’s stock to recover.

“This past year, our revenue grew to $25.8 billion, up from the previous year,” Su said. “We are excited about the possibilities, especially in AI.” However, analysts caution that AMD’s low profit margins—around 6% and trading at a price-to-earnings ratio of approximately 110—will need to improve significantly for the stock to be considered a sound long-term investment.

Given the current economic climate, investors remain wary. Potential tariffs and trade disruptions might dampen growth across various sectors, including semiconductors. Additionally, while AMD’s revenue is climbing, the company has struggled in profitability. Consequently, the necessary improvements in AMD’s financial health remain uncertain.

Despite these challenges, opportunities in the AI sector are becoming increasingly evident. In October 2024, AMD launched its latest AI chip, the Instinct MI325X, and increasing sales in AI chips could positively impact earnings in subsequent quarters.

Randy Zuckerberg, a member of The Motley Fool board, underscores the importance of maintaining realistic expectations about AMD’s growth. “We recommend that investors approach AMD cautiously,” she remarked. “The potential is certainly there, but its path forward is fraught with challenges.”

Ultimately, while AMD’s stock has struggled recently, analysts suggest that its future in the AI landscape may offer fertile ground for investments, leading to substantial growth if the company delivers on its projections.

The Motley Fool holds positions in Advanced Micro Devices, Intel, Microsoft, and Nvidia, and continually monitors their performances and potentials as market dynamics evolve.