Shares of Advanced Micro Devices (AMD) have experienced a notable decline over the past year, losing approximately 38% of its value. The stock has trailed the S&P 500 Index’s ($SPX) return of about 21.8%. This downturn becomes even more striking when compared to its rival Nvidia (NVDA), whose stock soared over 74% during the same period, despite recent setbacks associated with the launch of DeepSeek’s R1 model.

A key contributing factor to AMD’s lagging performance has been its limited market share in the high-growth artificial intelligence (AI) segment compared to Nvidia. AMD also faces stiff competition in the CPU market, which poses challenges to maintaining competitive pricing. Concurrently, macroeconomic headwinds and a soft performance in the gaming segment have added further strain to AMD’s financial results and stock valuation.

AMD stock faced additional pressure following its Q1 2025 guidance release on Feb. 4. Despite exceeding expectations in its fourth-quarter performance, the company’s shares declined by over 10% as investors reacted negatively to its full-year revenue forecast.

Despite these challenges, AMD’s underlying business performance remains resilient. Looking ahead to 2025, the company anticipates continued strength in its business, led by new product launches, which could support its stock price. Let’s delve deeper into AMD's prospects and the catalysts poised to drive its future growth.

Data Center AI Business: A Major Growth Driver

AMD is poised for remarkable long-term growth, driven by its flourishing data center AI business. In 2024, the company reported over $5 billion in revenue from this segment, and management expects this figure to soar into the tens of billions annually in the coming years. With its focus on hardware and software advancements, AMD’s journey into 2025 looks promising.

As AMD enters 2025, its hardware and software development pipelines are progressing at full throttle. A significant highlight is the recent launch of the MI325 GPU accelerators at the end of 2024, with shipments already underway. In addition, AMD is ramping up new designs for the MI300 and MI325 series, with full deployment planned for the first half of the year.

The MI350 series could prove to be the real game-changer. Initially slated for launch in the latter half of 2025, the development timeline has accelerated due to stronger-than-expected customer demand. AMD now plans to begin production in mid-2025, enhancing its competitive edge in the market.

Overall, AMD’s data center business is on track for double-digit growth, encompassing both server products and data center GPUs. While the first half of 2025 is expected to show steady growth, the second half is poised for a significant revenue surge driven by the MI350 launch.

Looking beyond 2025, AMD’s management sees a booming total addressable market (TAM) for data center accelerators, projected to reach over $500 billion by 2028. Thanks to an increasingly competitive product roadmap, the company remains confident in its ability to capture a significant share of this market.

The MI300 series was a strong entry into the market, but the upcoming MI350 series promises to address a broader range of workloads, including both inference and training. With the MI400 series on the horizon, AMD is already generating excitement around rack-scale designs and advanced innovations that will drive the data center business and its market share.

Strength in the CPU Business

The CPU market, particularly in the server segment, is fiercely competitive. However, AMD appears well-positioned to maintain and strengthen its foothold in this space. Thanks to a robust product lineup that spans multiple generations, the company offers compelling solutions with broad appeal.

AMD stands to grow its server CPU business from a unit sales perspective. Further, its average selling prices (ASPs) are likely to increase. These factors and continued market share gains make AMD’s CPU business look promising for sustained growth.

Should You Buy AMD Stock?

AMD’s robust data center AI product pipeline, strong customer demand, accelerated production timelines, and a bullish outlook on long-term growth suggest that the stock is well-positioned for a rebound.

Management projects robust double-digit revenue and earnings per share (EPS) growth in 2025. As AI adoption expands, AMD’s strategic investments in this space will yield significant returns.

Wall Street analysts are bullish about AMD’s prospects and maintain a “Strong Buy” consensus rating.

Overall, in the current market environment, AMD appears to be an attractive buy for investors seeking exposure to a stock with growth potential in AI and data center markets.