AMD Deep Dive: From Underdog to AI & Data Center Contender
AMD business model, competitive positioning, growth prospects, and valuation
For February’s deep dive, we are analyzing Advanced Micro Devices (AMD), a key player in the semiconductor industry.
The explosive demand for AI has driven us to explore this space further. Given the industry’s complexity, our goal this year is to deepen our understanding to ensure we position our portfolio strategically for the future.
While we already hold KLA Corporation, which we previously covered, we want to expand our knowledge and take it a step further. That’s why we plan to publish 1-2 more deep dives in 2025, covering other critical segments of the semiconductor supply chain.
In this write-up, we provide a comprehensive overview of AMD, exploring its business model, competitive positioning, growth prospects, and valuation.
Contents:
Key Facts
Business Overview
Management
Financial Analysis
Competitive Advantages, Opportunities and Risks
Valuation
Conclusion
Without further ado, let’s dive in.
1. Key Facts
Description: Advanced Micro Devices (AMD) is a leading fabless semiconductor company that designs and sells high-performance semiconductor chips including among others central processing units (CPUs), graphics processing units (GPUs), field-programmable gate arrays (FPGAs) and adaptive system-on-chips (SoCs). AMD’s products power a wide range of applications including PCs, gaming consoles, data center servers and AI accelerators. Among others AMD competes with Intel in the CPU space and with Nvidia in the GPU space.
Key Financials: From FY15 to FY24, the company achieved a revenue Compound Annual Growth Rate (CAGR) of 23%, reaching $25.8 billion in FY24 while its operating income increased from a loss of $352 million in FY15 to $2.1 billion (8.1% operating margin) in FY24. AMD has debt and lease liabilities of $2.3 billion compared to cash and short-term investments of $5.1 billion.
Price & Market Cap (as of 19 February 2025): Its market cap is $186 billion with a 52-week low of $107 and a 52-week high of $227, whereas it currently trades at $114.7.
Valuation: It trades at a NTM EV/EBITDA of 23.2x (5 Year average of 29.4x) and a NTM EV/Sales of 5.8x (5 Year average of 7.5x).
2. Business Overview
a. History
AMD’s transformation over the past decade stands as one of the most remarkable turnaround stories in the semiconductor industry with its current CEO Lisa Su, playing a crucial role in its success. When she took the helm in 2014, AMD was struggling with declining revenue, burning cash, and losing market share to Intel and Nvidia.
By emphasizing on product-redesign, customer centricity and strategic partnerships, Lisa Su revitalized AMD. Under her leadership, the company’s stock price surged from the range of $2 in 2014 to $115 today, and in 2024, Time Magazine named her ‘CEO of the Year’.
Source: Koyfin (affiliate link with a 20% discount for StockOpine readers)
The “Zen” Era
Recognizing that AMD needed a radical change, Lisa Su prioritized innovation over cost-cutting. Despite financial struggles, she remained committed to R&D investments, which ultimately led to the development of the Zen architecture, a game-changing CPU design that significantly improved AMD’s competitiveness against Intel. Zen introduced higher core counts and improved instructions per clock (IPC), allowing AMD to regain market share.
However, the true breakthrough came in 2019 with Zen 2, when AMD pioneered chiplet technology at scale. AMD was one of the first companies which adopted chiplet design at scale, extending the historical performance gains of Moore’s Law. Rather than relying on large, monolithic chips, AMD introduced a chiplet-based design, using multiple smaller dies interconnected via Infinity Fabric, the company’s proprietary high-speed interconnect.
This approach offered several advantages:
Higher core counts with improved efficiency.
Better manufacturing yields (a defect in one small die does not ruin the entire chip, unlike monolithic designs).
Lower production costs, as smaller chiplets are easier to produce.
Faster time-to-market for new products.
Graphics and Heterogeneous Computing
AMD has significantly strengthened its GPU business with the development of its RDNA architecture in 2019, enhancing the competitiveness of Radeon GPUs against Nvidia. RDNA focused on performance and efficiency, delivering notable improvements in gaming and graphics workloads. While AMD still trails Nvidia in the high-end GPU segment, RDNA has narrowed the performance gap, making AMD a stronger contender in the consumer GPU market.
In addition, AMD has pushed into heterogeneous computing, integrating CPUs and GPUs into Accelerated Processing Units (APUs). APUs excel in power efficiency and affordability, making them particularly attractive for gaming and mainstream computing. The CPU handles general-purpose tasks, while the GPU excels at parallel processing, making it ideal for tasks like graphics rendering, video processing, and intensive computations.
An APUs improves performance by offloading certain tasks to the processor that's best suited for them, leading to lower power consumption. Additionally, they are cheaper for OEMs as the CPU and GPU are combined into a single die leading to lower manufacturing cost. However, for highly intensive workloads such as high end gaming and professional content creation such as CAD, separate CPU and a dedicated GPU might be a more efficient choice.
Strategic Partnerships
Lisa Su also prioritized key partnerships to solidify AMD’s market position. By working closely with hyperscalers (AWS, Microsoft, and Google), AMD expanded its cloud footprint:
2017 - Microsoft Azure became the first cloud provider to integrate EPYC processors (high performance CPUs).
2018 – AWS launched first-gen AMD EPYC processors for its cloud infrastructure.
Meanwhile, AMD is the exclusive supplier of semi-custom SoC (System on Chips) for Sony’s PlayStation 5 and Microsoft’s Xbox Series consoles. These partnerships ensured that for every console sold, AMD generated revenue.
Leveraging TSMC’s Process Node Leadership
Furthermore, at a time when Intel was struggling in transitioning from its 10nm to 7nm fabrication, AMD capitalized on its partnership with TSMC and leveraged TSMC’s 7nm process to develop its Zen 2 architecture. This move helped AMD surpass Intel in performance and efficiency, accelerating its market share gains.
Market share gains
Under her leadership, AMD transformed from a money-losing, declining company into a profitable industry leader with record-high revenues and market share. In fact, as of Q3’24, AMD captured 24.2% of the server CPU market, 28.7% of the desktop CPU market and 22.3% in the mobile CPU market.
Source: Digitimes