Can AMD Emerge as a New Powerhouse in the AI Market?
AMD’s recent Q2 2025 earnings clearly demonstrated its growth potential in the AI market. Revenue surged by 32% year-over-year to $7.69 billion, surpassing market expectations. This success was driven by the strong performance of EPYC CPUs in the data center segment and Zen 5 processors in the client segment. Notably, as mass production of the MI300 series—a key player in the AI accelerator market—begins, the competition with NVIDIA is entering a new phase.
Short-Term Profitability Decline, But Fundamentals Remain Solid
However, external factors such as the US-China tech rivalry have hampered AMD’s profitability. Export restrictions on the MI308 data center GPU to China resulted in an $800 million inventory write-down, causing a temporary operating loss.
Despite this, the charge is largely a one-time event, and AMD’s core businesses in data centers and AI continue to show strong growth. The company’s Q3 revenue guidance of approximately $8.7 billion, which helped alleviate market concerns, is a testament to this underlying strength.
Scenario 1: Sustaining 30% Annual Growth
If AMD maintains an average annual growth rate of 30% for the next three years, it is projected to reach $68.7 billion in revenue and an EPS of $5.69 by 2028.
At its current stock price of $218, the forward Price-to-Earnings (P/E) ratio based on 2028 earnings would be 38.3x. This indicates that the current high valuation has already priced in significant future growth. However, considering the explosive expansion of the AI market, there is still room for the stock to rise to $256 in a neutral scenario (applying a 45x P/E ratio) over the medium to long term.
| Scenario | Applied P/E | Fair Price 2028 | Return vs. Current | Avg. Annual Return |
|---|---|---|---|---|
| Conservative | 35x | $199 | -9% | -3.0% |
| Neutral | 45x | $256 | +17% | +5.5% |
| Aggressive | 55x | $313 | +44% | +12.8% |
Scenario 2: Capturing 30% of NVIDIA’s Market Share
In a more aggressive scenario, let’s assume AMD captures 30% of the revenue from NVIDIA, which currently dominates 94% of the AI GPU market. This would be a “game-changer,” increasing AMD’s market share from 6% to 36%—a sixfold jump.
Assuming a 25% profit margin for the new AI GPU business in this scenario, AMD’s overall business structure would dramatically improve:
- Blended Net Profit Margin of 21.0%: The combination of the existing business (13.2%) and the new AI GPU business (25.0%) would significantly boost overall profitability.
- EPS of $12.18: This represents a massive 370% increase from the current estimate ($2.59), making the P/E ratio at the current stock price a very attractive 17.9x.
- Fair Stock Price: In a neutral scenario (45x P/E), the price target would be $548, and in an aggressive scenario (55x P/E), it would be $670. This suggests a potential upside of 150-207% from the current price.
| P/E | Target Price | Upside vs. Current |
|---|---|---|
| 25x | $304.40 | +39.6% |
| 35x | $426.16 | +95.4% |
| 45x | $547.92 | +151.2% |
| 55x | $669.68 | +207.1% |
Conclusion: A Challenging but Not Impossible Future
Of course, overcoming the formidable moat of NVIDIA’s CUDA ecosystem, outperforming next-generation chips like Blackwell, and securing a large-scale supply chain are incredibly challenging tasks.
However, market shifts are already underway. Oracle recently announced a large-scale adoption of AMD’s AI chips, and OpenAI is actively seeking alternatives to NVIDIA.
AMD’s current stock price does not reflect these extreme success scenarios. If AMD can successfully disrupt NVIDIA’s monopoly and capture significant market share, today’s price may just be the starting point for explosive future growth. AMD’s challenge for supremacy in the AI market has just begun.