Advanced Micro Devices (NASDAQ: AMD) has been one of the biggest success stories over the last decade in the semiconductor industry.
Under the guidance of CEO Lisa Su, the company has reinvented itself after a long history as an also-ran in the industry. It shed its foundry business to become a dynamic fabless chip designer that has steadily grabbed market share from Intel in the PC market, and it's emerged as a promising maker of artificial intelligence (AI) GPUs in the data center market.
Over the last decade, AMD stock is up more than 4,000%, but lately, its fortunes have reversed. Over the last year, the stock declined nearly 40% as AMD's AI business grew slower than investors hoped.
However, that sets the stock up for a recovery in the coming years as it now looks cheap, and AMD is executing effectively as its latest earnings report shows. Investors largely shrugged off AMD's first-quarter earnings report. There was some concern that AI growth was getting pushed to the second half of the year as revenue in its data center segment was down sequentially in the first quarter.
Let's take a look at the numbers and see what it would take for AMD stock to double in the next two years.
Image source: Getty Images.
AMD's momentum is building
In the first quarter, AMD reported its fastest revenue growth since 2022 when its numbers were juiced by the acquisition of Xilinx. Revenue growth accelerated to 36% in Q1, reaching $7.44 billion, ahead of the consensus at $7.12 billion. Growth was paced by a strong performance in both the data center and client segments.
Data center revenue jumped 57% to $3.7 billion, driven by growth in its EPYC CPU and Instinct GPU chips, while client revenue, which includes PCs, rose 68% to $2.3 billion due to strong demand for its Zen 5 AMD Ryzen processor.
The company also closed on its acquisition of ZT Systems, a server maker, which it said would help it address a data center AI accelerator market it believed would be worth $500 billion by 2028.
Second-quarter guidance was better than expected as the company expects revenue around $7.4 billion, which includes $1.5 billion in lost revenue due to new export restrictions on certain AI chips intended for China. That compared to the consensus at $7.24 billion and represents 27% growth from the quarter a year ago.
An advantageous position
Nvidia dominates the market for data center GPUs, and that's unlikely to change. However, it's beneficial to a number of industry players, including GPU buyers, for Nvidia to have some competition, and AMD is the closest alternative right now. That puts the company in an advantageous position.
In the first-quarter report, the chipmaker said Oracle would deploy a large-scale cluster powered by MI355x accelerators and 5th Gen EPYC processors later this year. And Amazon just disclosed a first-quarter purchase of 822,234 AMD shares, indicating a deepening partnership between the two companies as Amazon already uses AMD chips for a number of its products.
Why AMD stock could double
AMD should continue to benefit from tailwinds in AI and the data center segment. Even a recession is unlikely to significantly delay investment in the cutting-edge technology as the big hyperscalers and others are racing to artificial general intelligence (AGI).
With the upcoming launch of new Instinct accelerators like the MI350 and MI400 and its recent results, AMD is showing that it will be a player in this market, even if it lags significantly behind Nvidia.
Additionally, AMD looks well positioned to continue grabbing market share from Intel in the client segment, as Intel is still significantly larger than AMD, but reported an 8% decline in the client segment to $7.6 billion. With layoffs expected and Intel's focus on rolling out its 18A process at Intel Foundry, returning the client segment to growth doesn't seem to be its biggest priority right now.
Finally, AMD stock looks surprisingly affordable given the accelerating revenue growth and the upcoming launch of several new accelerators.
The stock trades at a forward P/E of 26, and based on 2026 estimates, it trades at a P/E of just 17. If its recent momentum continues, those estimates are likely to move higher, which should drive the stock price higher as well.
At that valuation and with its growth momentum, gaining 111% over the next two years to return to its all-time high at $211.38 seems within reach.
Investors will learn more at the company's "Advancing AI" day in June, but the future continues to look bright for AMD. Keep an eye on the performance and the launch of its new AI accelerators later this year.
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Jeremy Bowman has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Oracle. The Motley Fool recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.
