All AMD stock investors should pay attention to this number

On some levels, advanced micro device (AMD 2.26%) Looks more and more like a competitor Nvidia in the artificial intelligence (AI) accelerator market. While most people recognize Nvidia as the dominant player in this market, AMD surprised some by winning the deal with Nvidia. oracle.

Yet, despite all these accolades, AMD has barely made a profit and its revenue growth remains in the single digits. And despite the deal with Oracle, AMD has yet to join Nvidia’s ranks when it comes to AI accelerators.

Nevertheless, one metric for AMD showed a dramatic improvement. As this number continues to grow, the semiconductor stock could be replaced by a serious competitor to Nvidia in the AI ​​accelerator market.

Where should investors pay attention?

The important number is data center revenue, not data center revenue. Percentage of total revenue. Here’s why: In the second quarter of 2024, AMD’s revenue of $5.8 billion increased by only 9% annually. However, this number is deceptive. Gaming revenue was down 59% and embedded revenue was down 41%.

However, revenue in data centers, the division that designs AI accelerators, rose 115%. This is important because Nvidia’s data center revenue accounted for 88% of the company’s total revenue in the most recent quarter. Three years ago, this wasn’t Nvidia’s biggest source of revenue. Now, the same pattern appears to be emerging in AMD’s financials.

In the second quarter, data centers accounted for 49% of AMD’s revenue, up from just 25% a year ago. Assuming it follows in Nvidia’s footsteps, AMD’s data center revenue appears to be on track for continued rapid growth.

Additionally, the chip industry’s cyclical nature means the gaming and embedded segments are unlikely to experience a revenue decline comparable to last year. Both factors should mean that AMD’s overall revenue, and therefore net income, will likely increase significantly, attracting more investors to AMD.

After all, AMD is unlikely to achieve market leadership anytime soon. But as long as the data center division continues to grow as a percentage of the company’s revenue, its stock price should rise dramatically.