To The Moon

$Advanced Micro Devices(AMD)$

AMD at $100: A No-Brainer Opportunity or a Falling Knife?

First, let’s address the term "catching a falling knife." This phrase is typically used by traders trying to time the bottom of a rapidly declining stock for a quick rebound. It can apply to long-term investors as well, but they usually have a different perspective. A long-term investor buys a stock at a specific price because they believe the value they’re getting today will be worth significantly more in the future, even if the stock drops a bit more in the short term.

For traders, a falling knife scenario happens when a stock drops 5-10% in a day with no strong buying activity. If it rebounds, they aim for a small 2-3% gain. However, if it continues to decline, they typically get stopped out of their position.

With that in mind, I don’t consider buying AMD at $100—or even when I bought it at $110—catching a falling knife. I liked AMD at $110, so I love it even more at $100 or below. Additionally, AMD has recently received positive news that could significantly benefit its gaming segment, which has been struggling for over a year. This might also put some pressure on Nvidia, which I'll discuss in a moment.

AMD’s Performance and Market Outlook

Over the last three years, AMD’s stock hasn’t moved much. It’s down nearly 99.8% in that period. However, zooming out to a five-year view, it’s up 116%. In the past year alone, AMD has dropped around 50%. Fortunately, I started buying more recently, but I’m still down about 8% on my position. That said, looking at AMD’s current market cap, I believe it’s undervalued. Maybe I’m being overly optimistic, but I think I’ll significantly outperform the market over the long run if I continue holding AMD.

The Gaming Segment: A Potential Rebound?

When discussing AMD, most of the focus is on AI and data center revenue, as those are the biggest growth drivers. The absence of AI revenue guidance in the last earnings call was a key reason for the stock’s decline. However, AMD has other important business segments.

The client segment is performing well, but gaming and embedded have been headwinds. That said, those headwinds are expected to turn into tailwinds later this year. AMD anticipates strong performance across all segments in 2025.

Gaming revenue specifically declined year-over-year due to an accelerated channel sellout ahead of the launch of the next-gen Radeon 9000 Series GPUs. This new RDNA 4 architecture will significantly improve ray tracing performance and introduce AI-powered upscaling for high-quality 4K gaming, with the first Radeon 9700 series GPUs launching in early March.

Market Share and Revenue Trends

According to Gamer Nexus and Jon Peddie Research, AMD’s gaming GPU market share has declined significantly:

• 2022: 16.8% (Nvidia: 81.9%)

• 2023: 17.1% (Nvidia: 82.9%)

• 2024: 10% (Nvidia: 90%)

This decline is evident in AMD’s gaming revenue:

• 2021: $5.6 billion

• 2022: $6.8 billion

• 2023: $6.2 billion

• 2024: $2.59 billion

Similarly, the client segment peaked in 2021, declined in 2022 and 2023, and has continued to drop in 2024. However, just as we’ve seen rebounds in the client business, I expect gaming revenue to recover—maybe not as sharply, but a rebound is coming in the second half of 2025.

Looking at operating income, AMD’s gaming segment is currently at $290 million in 2024. If it returns to previous levels of around $900 million, that’s an additional $600 million in operating income.

AMD’s Growth Outlook: A Smart Investment or a Falling Knife?

One of AMD’s key strengths is its expected revenue growth and free cash flow acceleration over the coming fiscal years.

• In fiscal 2024, free cash flow increased 114.5% to $2.4 billion.

• By 2025, it's projected to reach $6.77 billion (an 81.7% increase).

• In 2026, another 16.9% growth is expected.

• By fiscal 2027, free cash flow is projected to hit $11.32 billion, a 43% jump.

This rapid acceleration is largely driven by AMD’s data center segment, with upcoming MI350 and MI400 launches in 2026. However, it's crucial to recognize that AMD’s other business segments—such as gaming—also contribute to revenue and free cash flow growth, making the company’s overall outlook even stronger.

AMD’s Radeon 9000 Series: A Smart Play in the Gaming Market

Last week, AMD hosted an event unveiling the Radeon 9000 Series GPUs, focusing on what gamers actually want: powerful, affordable graphics cards.

Key market insights:

• 85% of gamers buy GPUs under $700.

• More gamers are upgrading to 1440p and 4K displays.

• Nvidia GPUs are priced significantly higher, often exceeding $1,000+, which is out of reach for many mainstream gamers.

AMD’s strategy is clear: compete in the mass-market segment rather than trying to outperform Nvidia’s high-end GPUs. This move aligns with what the majority of gamers need—a well-priced GPU with strong performance.

New Radeon GPUs: Price & Performance

AMD introduced two key models:

1. Radeon RX 970 – $549, with 16GB of memory, offering 21% faster gaming than the RX 7900 GRE at 4K Ultra settings.

2. Radeon RX 970 XT – $599, also with 16GB of memory, delivering 42% faster gaming than the RX 7900 GRE at 4K Ultra settings.

The RX 970 XT vs. Nvidia RTX 5070 Ti comparison is particularly interesting. While the AMD card is 2% slower in raw gaming performance, it provides 23% more performance per dollar, making it a more attractive option for budget-conscious gamers.

AMD also emphasized the importance of software, stating that “good hardware needs good software.” Their RDNA 4 architecture is designed to optimize both.

AMD’s Path to Gaining Market Share

The goal isn’t to beat Nvidia across the board—AMD simply needs to become more competitive in key segments. If they succeed in offering better value-for-money GPUs, they can regain lost market share. This benefits consumers, as increased competition leads to better products at lower prices.

Valuation & Long-Term Outlook

A reverse discounted cash flow (DCF) analysis shows that to justify today’s ~$99 stock price, AMD’s free cash flow needs to grow at 19.6% annually over the next 10 years. Given that free cash flow is already expected to surpass $11.2 billion by fiscal 2027, this target seems not only achievable but possibly conservative.

This is why I don’t consider AMD a “falling knife.” I believe in its long-term potential and am accumulating more shares as prices drop. If AMD goes lower, that simply means more buying opportunities for a fundamentally strong company.

That said, investors should always have cash reserves to take advantage of lower prices. If you're fully invested and the stock drops 10-20%, you miss out on the chance to average down.

In conclusion, AMD’s fundamentals remain strong, and the long-term growth outlook makes it a compelling investment opportunity rather than a risky gamble.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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