Will AMD Be a Trillion-Dollar Stock by 2030?

Semiconductor stocks have been in solid form in 2024, which is evident from the 25% year-to-date gain recorded by the PHLX Semiconductor Sector index despite a recent pullback. But not all companies in this sector have managed to deliver stellar returns during this period.

The industry is benefiting from the growing adoption of artificial intelligence (AI) in multiple verticals, which explains why shares of chipmakers such as Nvidia and Broadcom continue to surge higher. However, Advanced Micro Devices (NASDAQ: AMD) has been left behind with the stock up just 7% this year, underperforming the sector and broader S&P 500 .

That said, a closer look at AMD's AI-related prospects indicates its recent underperformance is unlikely to last for long. This $250 billion company could soon resume its upward trajectory, but will it be enough to become a trillion-dollar stock by the end of the decade?

AMD stands to gain from AI adoption in multiple areas

AMD's larger peer Nvidia may have grabbed the lead in the market for graphics processing units (GPUs) used in data centers to train and deploy AI models and applications, but the former has also started making its mark in this space.

In the second quarter, AMD reported record data-center revenue of $2.8 billion, a big jump of 115% year over year. But what's worth noting here is AMD's data-center growth was not just driven by the growing demand for its AI GPUs but also by an increase in sales of its Epyc server central processing units (CPUs). On the latest earnings call , CEO Lisa Su remarked:

Data center segment revenue increased 115% year over year to a record $2.8 billion, driven by the steep ramp of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales. Cloud adoption remains strong as hyperscalers deploy fourth-gen EPYC CPUs to power more of their internal workloads and public instances.

So, AMD stands to gain from the growth of AI data centers in two ways. The first is tapping the market for AI GPUs, a market which the company anticipates could be worth a whopping $400 billion by 2027. AMD is behind Nvidia by a big margin in the AI GPU market. However, investors would do well to note that AMD sold more than $1 billion worth of its MI300 data-center GPUs last quarter, which was a record.

It has been setting new records as far as the sales of the MI300 GPUs are concerned for the past three quarters, and at the same time, it has been increasing its AI GPU revenue guidance constantly. The company forecasts that it could sell at least $4.5 billion worth of data-center GPUs in 2024, which is more than double the $2 billion forecast it issued last October.

AMD released its MI300 processors late last year, which means its data-center GPUs are ramping up nicely and could eventually move the needle more meaningfully for the company considering the long-term opportunity on offer in this space.

Nvidia reportedly controls a whopping 98% of the AI GPU market. If AMD can increase its share to even 10% by the end of the decade and the AI GPU market is worth $400 billion at that time, it could generate $40 billion in revenue from this segment. That would be nearly 10 times the revenue the company is on track to generate from this market in 2024.

The second opportunity for AMD is in the AI CPU market, which is expected to generate annual revenue of $410 billion in 2030 as compared to just $15 billion last year. This opportunity is comprised of both AI servers and personal computers (PCs), where the demand for CPUs capable of supporting AI workloads is set to increase because of the secular-growth opportunity in these markets.

For instance, the AI PC market is expected to clock 44% annual growth between 2024 and 2028. AI servers, on the other hand, are forecast to grow at an annual pace of 30% through 2033. AMD can make the most of both these opportunities -- its share of the data-center CPU market increased an impressive 5.6 percentage points year over year in Q2 2024 to 24.1%, according to Mercury Research.

Its revenue share was even better at 33.7%, which points toward solid pricing power. AMD has also gained ground in the PC processor market. Its share of desktop CPUs increased 3.6 percentage points last quarter to 23.0%, while mobile processor market share was up 3.8 percentage points to 20.3%.

So, AMD is setting itself up to make the most of the huge end-market opportunity present in AI CPUs. More importantly, the opportunities discussed above tell us why analysts are expecting AMD's growth to accelerate next year.

Data by YCharts .

But can it become a trillion-dollar company?

We have already seen that AMD's growth opportunity is likely to remain solid until the end of the decade. Moreover, analysts are expecting the company's earnings to increase at a compound annual growth rate (CAGR) of 33% over the next five years.

Assuming the company could maintain even a 25% annual earnings-growth rate until the end of the decade, its bottom line could jump to $12.93 per share in 2030 (using its projected 2024 earnings of $3.39 per share as the base). Multiplying that by AMD's five-year average forward-earnings multiple of 33 (which is lower than the U.S. technology sector's average-earnings multiple of 43) points toward a stock price of $427 after five years.

That would be a 188% jump from AMD's current stock price . So, its market cap could nearly triple by 2030 and hit $690 billion. While that might not be enough to reach the $1 trillion market-cap milestone, that would be far from a disappointing result for this AI stock .

Harsh Chauhan 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 recommends Broadcom. The Motley Fool has a disclosure policy .