The past three years have been extremely challenging for AMD, with the weakness of the personal computer (PC) market putting significant pressure on its share price (which has risen by only 44% over the past three years, significantly trailing the 56% increase in the Philadelphia Semiconductor Index). Simultaneously, fierce competition from NVIDIA (NVDA) in the gaming and data center segments has eroded investor confidence in AMD's stock.

The recovery of the PC market has brought significant benefits to AMD

According to IDC, global PC shipments declined by 14% in 2023, following a 16.6% drop in 2022. However, the market has started to recover in 2024, with IDC data showing a 1.5% increase in the first quarter and a 3% year-over-year growth in the second quarter. Beast Finance believes that this recovery trend will become stronger in the future as AI-powered PCs gain popularity.

IDC projects that annual shipments of AI-powered PCs will grow from 50 million units in 2024 to 167 million units by 2027, which could significantly contribute to the steady growth of AMD's client processor business.

Based on Mercury Research data, AMD's share of the desktop CPU market increased from 19.4% in the same period last year to 23% in the second quarter. Similarly, its share of the notebook CPU market rose from 16.5% to 20.3% over the same period. The increase in market share, coupled with the overall growth in PC sales, contributed to AMD's 49% year-over-year revenue growth in the second quarter, reaching $1.5 billion.

AMD CEO Lisa Su believes that the company is currently on a trajectory of sustained revenue and market share growth. "If AMD can continue to gain more PC CPU market share over the next three years, we may see even faster growth in our client segment," she said.

Data center business is driving AMD's revenue growth

AMD's data center business has traditionally been driven by its Epyc server processors, which have been competing with Intel (INTC). In the second quarter, AMD's share of the server CPU market reached 24.1%, up from 18.6% in the same period last year.

AMD management anticipates that the total addressable market for server CPUs will reach $42 billion over the long term. By 2023, AMD's data center revenue had already reached $6.5 billion, with most of it coming from server CPU sales. In terms of GPUs, AMD's MI300 series GPUs, introduced in December last year, contributed over $400 million in revenue in the fourth quarter.

Based on these figures, we can estimate that AMD's server CPU business contributed approximately $6 billion in revenue last year. Considering the total addressable market size and AMD's growing influence in this segment, Beast Finance believes it is not surprising to see a significant increase in AMD's server CPU revenue in the future. More importantly, AMD also expects its GPU business to accelerate significantly this year, further propelling the growth of its overall data center business.

While the GPU business generated over $400 million in revenue for AMD in the fourth quarter of 2023, following the introduction of the MI300 series GPUs, AMD projects GPU revenue to exceed $4.5 billion in 2024 (representing a more than tenfold increase from last year).

This indicates that AMD is consolidating its position as the second-largest player in the GPU market, trailing only NVIDIA. Considering AMD's previous projection of $40 billion in GPU revenue by 2027, Beast Finance believes this is a strong position. For AMD, this additional catalyst should provide significant momentum and growth over the next three years.

Acquisitions will strengthen AMD's prospects in AI

To ensure its position as a key player in AI, AMD has been making various acquisitions, including several significant ones announced in recent months.

For instance, in August this year, AMD completed its acquisition of Silo AI, Europe's largest private AI lab, for $665 million.

Headquartered in Helsinki, Finland, with operations across Europe and North America, Silo AI specializes in end-to-end AI-driven solutions that help customers integrate AI into their products, services, and operations quickly and easily.

By acquiring Silo AI, AMD becomes a one-stop AI solution provider, encompassing software in addition to hardware.

Furthermore, AMD has announced the acquisition of ZT Systems for $4.9 billion in cash and stock (with a definitive agreement already signed).

ZT Systems, headquartered in Secaucus, New Jersey, specializes in hyperscale server solutions for cloud computing and AI. Its AI and general-purpose computing infrastructure manufacturing operations span the United States, Europe, the Middle East, Africa, and Asia Pacific.

Upon completion of the acquisition, AMD will retain ZT Systems' design and customer teams. By preserving ZT Systems' design capabilities, AMD will be able to offer customers one-stop AI server solutions.

Thus, through these acquisitions, AMD positions itself as a one-stop-shop for companies looking to deploy AI server systems, encompassing both software and hardware.

Reference NVIDIA's profitability in this regard.

Beast Finance believes that AMD's strategy of acquiring companies to boost revenue and market share could yield significant returns in the long run.

AMD's earnings guidance for 2026 also indicates a 40% compound annual growth rate in profits over the next three years.

Therefore, investors looking to add AI stocks to their portfolios may consider AMD, given its stronger growth drivers over the next three years and potential for greater gains through various initiatives and strategies compared to the past three years.