Prediction: The Data Center Boom Is Just Starting, Making AMD a Long-Term AI Power Player

Perhaps one of the most overlooked players in the artificial intelligence (AI) infrastructure buildout right now is Advanced Micro Devices (NASDAQ: AMD). And truthfully, the company is being overshadowed at the moment.

Nvidia (NASDAQ: NVDA) grabs most of the headlines, and rightfully so, given its size and massive growth. The company is the clear leader in the data center graphics processing unit (GPU) space, with over 90% market share. AMD, meanwhile, is the distant No. 2 player in the GPU market.

At the same time, investors have started to get excited about custom AI ASICs (application-specific integrated circuits) for AI workloads. On this front, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) has garnered a lot of attention for its highly regarded tensor processing units (TPUs), especially with Meta Platforms (NASDAQ: META) in talks to use the Google-made chips. Meanwhile, Broadcom (NASDAQ: AVGO), which helped Alphabet design its TPUs, is also starting to gain a lot of investor interest as other hyperscalers (owners of large data centers) have begun turning to it to help them design their own custom AI chips.

That said, AMD also has a big opportunity in front of it with the data center boom just starting. And its stock could have more upside than some of these other names, given its much smaller size.

Image source: Getty Images.

A long-term AI infrastructure winner

Right now, the AI infrastructure buildout is booming, and it looks like it may be just getting started. Cloud computing and so-called neocloud companies are expanding their capacity rapidly, trying to keep up with growing AI-fueled demand. At the same time, other large tech companies, like Meta Platforms and Elon Musk-backed xAI, as well as countries, are also spending aggressively to build out their own massive data centers.

However, the most ambitious company is OpenAI, which has announced several massive data center deals, including a $300 billion, five-year deal with Oracle and a $38 billion deal with Amazon. It's also struck deals with chip companies, including Nvidia, Broadcom, and AMD.

OpenAI's partnership with AMD is perhaps the most unique, as OpenAI could acquire an up-to-10% stake in the company. As part of the deal, OpenAI has committed to deploying 6 gigawatts of AMD's GPUs over the next several years. One gigawatt of power tends to be around $35 billion worth of chips, so this is a huge deal for a company on pace to produce about $34 billion in total revenue this year. In exchange, OpenAI will get warrants for 160 million AMD shares that are tied to vesting milestones around its AMD chip deployment and the chipmaker's share price.

AMD's partnership with OpenAI will likely be its biggest growth driver, but it's not its only opportunity. The company has carved out a nice niche in inference, where Nvidia's CUDA software moat is not as wide as it is with training. This market is eventually expected to become the much larger market of the two, which opens the door for it to gain some share. Meanwhile, it got some potential good news when it was reported that Microsoft, one of Nvidia's biggest customers, had created toolkits to convert Nvidia's CUDA models to AMD's ROCm code, so it could save money by using more AMD GPUs for inference.

Another thing that should also not be overlooked is that while AMD is a distant second in the data center GPU market, it is actually the leader in the data center central processing unit (CPU) market, and it has been taking share. This market is not as large as the one for GPUs, which provide the processing power to run AI workloads, but it is a strongly growing market.

Ambitious but reachable goals

Given the opportunities in front of it, AMD laid out some ambitious goals at its analyst day in November. It believes it can grow its revenue at a 35%-plus compound annual growth rate (CAGR) through 2030, bringing it to more than $150 billion. Over this period, it expects to take a double-digit share in the AI data center chip market and a more than 50% share in the data center CPU market. Combined, this could lead to 60% revenue CAGR growth in its data center segment, and an 80% CAGR in AI data center revenue. It also forecast that it could produce over $20 in adjusted earnings per share (EPS), which would be a fivefold increase from the roughly $4 analyst EPS consensus for this year.

Given its partnership with OpenAI and other opportunities, these projections, while aggressive, are not far-fetched. And if it can hit these goals, the stock could be one of the biggest AI chip winners over the next five years.

Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.