This Underdog Semiconductor Stock Could Beat Nvidia in the Next Chip Race

As the semiconductor industry continues to evolve, the spotlight often shines on Nvidia (NVDA), given its dominance in artificial intelligence (AI) and graphics processing units. However, Advanced Micro Devices (AMD), also known as AMD, has made significant progress, establishing itself as a formidable competitor in the chip race.

Valued at $192 billion, AMD stock has fallen 3% year-to-date, compared to the tech-heavy Nasdaq Composite Index’s ($NASX) gain of 0.8%. 

AMD Powers Ahead in 2025

AMD delivered an exceptional first quarter in its fiscal 2025, solidifying its position as one of the leading contenders in the ongoing semiconductor and AI acceleration race. AMD’s performance was driven by an expanding AI portfolio, significant growth in its data center and client CPU segments, and strong traction in the hyperscaler, enterprise, and embedded markets. AMD kicked off 2025 with $7.4 billion in revenue, a 36% year-over-year increase that exceeded the upper end of its guidance. The Data Center segment generated $3.7 billion in revenue, a 57% increase year-over-year, driven by increased AMD EPYC CPU and AMD Instinct GPU sales. Cloud hyperscalers, including Amazon’s (AMZN) AWS, Google’s (GOOGL) Cloud, Oracle (ORCL), Tencent (TCEHY), and Alibaba (BABA), have expanded their EPYC-based instance offerings. Furthermore, enterprise adoption has doubled year-over-year, with major customers including CrowdStrike (CRWD), Siemens (SMNEY), and Oracle deploying EPYC processors to improve AI infrastructure. 

In the Q1 earnings call, management stated that manufacturing of the 5th Generation EPYC began in April at Taiwan Semi’s (TSM) Arizona fab, with first shipments expected in the second half of 2025. By 2026, the company plans to release next-generation EPYC Venice chips based on TSMC’s 2-nanometer node. AMD completed the acquisition of ZT Systems prior to the first quarter. However, recently, the company announced its decision to sell the data center infrastructure manufacturing business of ZT Systems to Sanmina Corporation (SANM) for up to $3 billion, while retaining the AI design teams. The goal of this decision is for AMD to focus on what it does best: Design powerful AI chips and systems, as well as assist large cloud companies (such as Microsoft and Google) in using AMD’s AI technology more effectively and quickly. By selling the manufacturing component, AMD will be able to focus more time and resources on innovation and design rather than building physical servers. 

The Client and Gaming segment generated $2.9 billion in revenue, a 28% increase, driven by demand for high-end Ryzen 7000 and Pro CPUs based on Zen 5 architecture. On the gaming front, the Radeon RX 9070, which is based on RDNA 4, sold out 10 times faster in its first week than any previous Radeon launch. However, gaming revenue fell 30% due to a decline in semi-custom revenue. 

The Embedded segment’s revenue fell 3% to $823 million. Management expects demand to recover by the second half of this year, owing to improved macroeconomic trends, reduced customer inventory, and new product introductions in networking, industrial, and edge AI.

At the end of the quarter, AMD had $7.3 billion in cash, cash equivalents, and short-term investments and $4.1 billion in total debt. The company also generated $727 million in free cash flow and returned $749 million to shareholders via buybacks. Recently, AMD announced a new $6 billion share repurchase program. This is in addition to the $4 billion it currently has, bringing the total current repurchase authority to $10 billion. 

Despite geopolitical challenges, AMD remains on track for strong full-year growth. The new export restrictions on MI308X to China could have a $700 million impact on revenue in Q2. Despite export controls, AMD expects 27% year-over-year revenue growth in the second quarter to $7.4 billion (plus or minus $300 million), as well as strong double-digit revenue growth in fiscal year 2025.

Analysts who cover AMD stock expect 2025 revenue and earnings to increase by 22.9% and 20.6%, respectively. Revenue and earnings could further increase by 17.6% and 43.2%, in 2026. Compared to its five-year historical average of 75.8x, AMD stock is currently trading at 20 times forward earnings, making it a reasonable semiconductor stock to grab now. 

What Does Wall Street Say About AMD Stock?

Overall, analysts are still optimistic about AMD’s long-term prospects. Following an outstanding quarter, top firms such as Bank of America, TD Cowen, and Wells Fargo maintained a “Buy” rating on AMD stock. Separately, Citi analyst Christopher Danely stated that AMD’s strategic decision to sell ZT Systems’ manufacturing division to Sanmina is intended to “strengthen AMD’s competitive position against Nvidia in the data center GPU market.” However, Danely believes the deal is undervalued and may have an impact on AMD’s financial outlook. Furthermore, Danely is concerned about slowing growth in the AI sector and has hence maintained a neutral stance on AMD stock. 

Overall, Wall Street rates AMD stock as a “Moderate Buy.” Of the 42 analysts that cover AMD, 28 rate it a “Strong Buy,” while one recommends a “Moderate Buy,” and 13 recommend a “Hold.” Based on its average price target of $130, Wall Street sees potential upside of about 10% over the next 12 months. Furthermore, its high target sits at $200, indicating a potential price increase of 70% from current levels.

The Verdict

While Nvidia remains the dominant force in AI, AMD’s strategic initiatives, product innovations, and leadership under CEO Lisa Su position the company as a strong contender for the next semiconductor and AI wave. It may be difficult to dethrone Nvidia. However, AMD’s focus on expanding its presence in the AI sector, combined with advancements in CPU and GPU technologies and strategic acquisitions, points to a promising long-term trajectory.