Could AMD Soar in 2025?

With how successful Nvidia has been as an investment, it's only natural to look at similar companies and see if they have upside. AMD (NASDAQ: AMD) also has a significant lineup of graphics processing units (GPUs) that are being used to create artificial intelligence (AI) models.

While AMD is the clear second-place player to Nvidia, could it soar in 2025?

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AMD just posted the best quarter it had in two years

AMD is a much broader company than Nvidia. While Nvidia is focused on the GPU market and the various items to support it, AMD also has its hands in CPUs (central processing units), which are used in data centers and PCs. It also has an embedded processor segment that produces field programable gate arrays (FPGAs), which are used in purpose-built industrial applications.

As a result of AMD's diversification compared to Nvidia, it hasn't done as well in the past few years. While Nvidia's revenue has soared since 2023, AMD's revenue has stayed fairly flat.

NVDA Revenue (TTM) data by YCharts

However, AMD's stagnant revenue figure has more to do with its diversification rather than its second-place GPUs. In many quarters, AMD's data center revenue (which houses its GPU segment that is comparable to Nvidia) has rapidly increased. In Q3 of fiscal year 2024, revenue was up 122% year over year. Yet the rest of its business was a mixed bag.

Client revenue, which encompasses AMD's hardware used in PCs, was up 29%, which is a great sign for AMD, as this segment has struggled in past quarters. However, its gaming and embedded segments were down 69% and 25% year over year, respectively. Still, these up-and-down results allowed AMD to increase its revenue by 18% year over year -- the fastest growth since 2022.

AMD Operating Revenue (Quarterly YoY Growth) data by YCharts

But that's just the beginning. In 2025, Wall Street analysts believe that AMD's sales will increase 27% year over year, and earnings per share (EPS) will rise an incredible 54%. During its Q3 conference call, AMD's CFO Jean Hu called out strength in its data center and client business as growth drivers for 2025. She also mentioned that the embedded processor business is set to rebound.

These will be areas to watch in 2025, but does that all add up to a stock that's primed to soar in 2025?

AMD is already quite pricey

Although AMD has played second fiddle to Nvidia in the GPU market, it still demands quite a premium from the market. AMD stock trades for 38 times forward earnings, the cheapest it has traded all year.

AMD PE Ratio (Forward) data by YCharts

While that may seem like a bargain price tag compared to where it traded at the rest of the year, Nvidia still trades for 45 times forward earnings.

So, investors need to ask themselves: Is it worth buying AMD over Nvidia? After all, Wall Street analysts project that Nvidia will grow revenue by 51% next year, with EPS rising 50% as well. Those are similar projections, at least from an EPS standpoint, but Nvidia's revenue growth blows AMD out of the water.

With that in mind, I think AMD could be a successful stock in 2025, as the company has strong tailwinds. However, the stock is already fairly expensive (38 times forward earnings is more expensive than many of the big tech companies) and is putting up similar levels of growth as the undisputed market leader in GPUs.

As a result, I think investors are better off buying Nvidia for 2025. Nvidia has more exposure to the growth trends that are pushing both stocks higher and less exposure to the business segments that are dragging AMD down. In other words, I still think AMD is a solid stock for 2025 -- just not as good as Nvidia.

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.