This magnificent stock has made many millionaires and may make more

ten years ago Advanced microdevices‘ (AMD -1.03%) the stock was trading at just $3 a share. At the time, the chip maker was struggling to keep up with Intel (INTC 0.60%) in the x86 CPU market and Nvidia (NVDA -0.18%) in the discrete GPU arena.

But under Lisa Su, who took over as AMD CEO in October 2014, the chipmaker has made a historic comeback as it has developed more powerful chips, expanded its lineup of custom and embedded chips, and capitalized on its big blunders. Intel.

Today, AMD stock is trading at $170. A $20,000 investment at $3 per share would have grown to $1.13 million today. Let’s see why AMD generated those millionaire earnings — and why it might even hit millionaires in the future.

Image source: Getty Images.

How did Lisa Su save AMD?

AMD gained a lot of ground over Intel in the x86 processor market by 2006. However, according to PassMark Software, AMD’s global market share fell from a peak of 48.4% in the first quarter of 2006 to just 17 .8% in the fourth quarter of 2016. From 2006 to 2016, AMD’s annual revenue decreased from $5.65 billion to $4.32 billion.

This decline was caused by three main challenges. First, AMD acquired ATI for $5.4 billion in 2006 to expand into the discrete GPU market. This massive acquisition took valuable resources out of the CPU business and put it head-to-head with Nvidia’s business, which dominated the GPU market. Second, Intel released its first 45-nanometer (nm) chips in 2007, a full year before AMD. That start, along with its aggressive marketing blitz, drove PC makers away from AMD.

Third, AMD botched its transition to 32nm chips in 2011. Its Bulldozer processors disappointed PC makers with their poor single-threaded performance and drove even more customers to Intel. As AMD has ceded the CPU market to Intel, it has also struggled to gain much ground against Nvidia in the discrete GPU market.

Lisa Su revived AMD’s ailing business with three core strategies. First, AMD expanded its integrated and semi-custom chip (EESC) business by selling custom APUs — which combine a CPU and GPU on a single board — for SonyHis PlayStations and Microsofthis Xbox consoles.

Second, AMD is resetting its CPU business with a new generation of Ryzen desktop processors and Epyc server processors aimed at fixing Bulldozer’s biggest shortcomings. AMD eventually moved production from the former foundry facility GlobalFoundries TO Taiwan Semiconductor Manufacturingthe world’s most advanced contract chip manufacturer.

As AMD developed more powerful chips and switched to TSMC, Intel’s in-house foundries lagged behind TSMC in the “process race” to produce smaller, denser, and more powerful chips. AMD capitalized on Intel’s delays, shortages and discordant CEO changes — and its share of the x86 processor market grew to 35% by the fourth quarter of 2024. Intel’s share fell to 61.6%. From 2016 to 2023, AMD’s revenue grew from $4.32 billion to $22.68 billion.

Why AMD could beat even more millionaires?

A few tailwinds should further drive AMD’s earnings. Intel’s deepening crisis, which is exacerbated by disappointing returns on its latest 18A chips and an uncertain future for its capital-intensive foundries, should convince even more PC makers to adopt AMD processors . AMD won’t struggle with major production bottlenecks as long as it continues to outsource its production to market-leading TSMC foundries.

AMD lags far behind Nvidia in the gaming GPU market, but is ramping up production of cheaper Instinct data center GPUs for accelerating artificial intelligence (AI) tasks. As market demand for Nvidia’s data center GPUs continues to outstrip available supply and keep prices high, more companies may adopt AMD GPUs. Tech titans like Microsoft, Meta platforms, Oracle, Dell Technologiesand Hewlett Packard Enterprise have already tested and run Instinct GPUs.

AMD’s 2022 acquisition of Xilinx, which makes field-programmable gate array (FPGA) circuits for data centers and other industries, should further complement its growth in the AI ​​market. Intel’s rumored interest in selling Altera — Xilinx’s main FPGA competitor that it acquired in 2015 — could also leave AMD as the only one-stop shop for data center processors, GPUs and FPGAs for the AI ​​market in full expansion.

From 2023 to 2026, analysts expect AMD’s revenue to grow at a compound annual growth rate (CAGR) of 20% as its EPS grows at a CAGR of 101%. AMD stock isn’t cheap at 50 times next year’s earnings, but its rapid growth could justify that premium valuation. If it matches those expectations and continues to grow earnings at a more modest 25% CAGR over the next nine years, it could generate EPS of $32 in 2035. If it still trades at 50 times forward earnings by then, the price its shares could rise 840% to around $1,600 and lift its market cap to $2.6 trillion by 2034.

If that happens, you would need to invest $120,000 in AMD to reach $1 million over the next 10 years. But if you can afford to wait a few more decades, AMD still has the potential to generate millions in earnings from even less money.