This AI chip stock has pulled back in 2025 despite its impressive growth.
A closer look at the markets this chipmaker serves suggests it is on track to exceed consensus expectations on May 6.
Advanced Micro Devices(NASDAQ: AMD) investors are having a forgettable year so far as shares of the chipmaker have pulled back by more than 20% in 2025 as of this writing. However, there is a good chance that the company's fortunes could turn around for the better once it releases its first-quarter 2025 results after the market closes on May 6.
It is worth noting that AMD's financial performance has been picking up momentum in recent quarters, thanks to its data center and client processor businesses. A similar story is likely to unfold when the company releases its quarterly results shortly, potentially sparking a rally in AMD stock.
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Let's see why that may be the case.
AMD's results are likely to outpace expectations
When AMD released its fourth-quarter results in February of this year, the company reported a 24% year-over-year jump in revenue, along with a 42% spike in adjusted earnings per share to $1.09 per share.
The chipmaker is on track to deliver faster growth in Q1, projecting a 30% year-over-year jump in the top line. It also anticipates an increase of two percentage points in the non-GAAP (generally accepted accounting principles) gross margin, which should translate into stronger earnings growth.
Unsurprisingly, analysts are forecasting a 50% jump in AMD's Q1 earnings. There are a few reasons why AMD could easily meet or even exceed analysts' expectations. For instance, sales of personal computers (PCs) shot up impressively in the first quarter of 2025. Counterpoint Research estimates that global PC shipments increased by 6.7% from the year-ago period.
This increase bodes well for AMD, considering it relies on the PC market for a nice chunk of its revenue. The client segment produced 27% of AMD's top line in 2024. This segment's revenue jumped 52% last year, even though global PC shipments increased just 1%. AMD was able to outperform the broader PC market significantly thanks to the company's growing market share in this space.
AMD's revenue share of the client processor market increased by an impressive 8.4 percentage points to 23.8% in the fourth quarter of 2024, according to Mercury Research. This suggests that the company still has a lot of room for growth in this market. Moreover, the acceleration in PC shipments last quarter should help AMD benefit from a combination of improved market share and higher volumes.
As a result, don't be surprised to see AMD's client revenue jump significantly in Q1. Additionally, the Trump administration's decision to exempt imports of PCs and other components, such as processors and memory chips, from duties should be a tailwind for the PC market, especially with the growing adoption of artificial intelligence (AI) PCs.
Market researcher IDC is forecasting a 3.7% increase in shipments of PCs this year, even after accounting for the potential impact of tariffs, driven by an increase in sales of Windows 11 PCs and AI PCs. That's going to be higher than the pace at which the market grew last year, indicating that AMD's client business should ideally deliver a much stronger performance in 2025.
Meanwhile, the demand for AI chips, such as server processors and graphics processing units (GPUs), is showing no signs of slowing down. Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC, recently said that AI chip revenue is on track to double this year. The foundry giant, which fabricates AMD's chips, hasn't seen any change in customers' order patterns amid the tariff-fueled turmoil.
This suggests that AMD's data center business could keep growing at a nice pace. The company witnessed a 69% year-over-year increase in revenue from this segment in the fourth quarter of 2024, which is impressive, considering Nvidia is the dominant force in this market. Looking ahead, AMD aims to push the envelope in the AI data center chip market with TSMC's help.
The Taiwan-based company says AMD is its lead high-performance computing (HPC) customer for the advanced 2-nanometer (nm) manufacturing process. This could help AMD make a bigger dent in the massive AI data center market as the 2nm process node is expected to deliver a 15% performance increase while reducing energy consumption by 35% compared to the current 3nm node.
TSMC is expected to begin mass production of chips based on the 2nm node this year, which explains why AMD's next-generation chips based on this manufacturing process could hit the market next year. As such, AMD seems capable of sustaining strong levels of growth not only in 2025 but also in the long run.
The stock is attractively valued going into its earnings report
AMD's poor performance on the market this year, combined with its healthy growth it has been clocking in recent quarters, means investors can buy this stock at a very attractive 21 times forward earnings right now. That's lower than the tech-laden Nasdaq-100 index's forward earnings multiple of 24.5.
With AMD's earnings expected to increase by 33% in 2025, followed by a stronger jump of 35% in 2026, investors are getting a good deal on this semiconductor stock right now. If AMD manages to deliver a solid report and backs it up with strong guidance, AMD could regain its mojo and jump higher once again, which is why it may be worth buying before its upcoming quarterly report.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
