AMD stock (AMD) is trading roughly 34% below its 52-week highs, raising the question of whether it can rebound to new highs. Well, the company seems well-positioned to take advantage of the booming demand for AI infrastructure and data center solutions. This should serve as a strong catalyst for revenue and earnings growth and, in turn, share price gains. In fact, recent developments show that the tech giant is doubling down in areas critical to future growth, even as competition heats up. Therefore, I am bullish on the stock.
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Data Centers and AI: The Backbone of AMD’s Growth
Let’s begin by discussing AMD’s data center and AI businesses, which have been the primary drivers of its recent growth and the “engine” of my bullish view. Specifically, AMD reported a 115% year-over-year increase in data center revenue in its most recent Q2 results, fueled by strong demand for its EPYC processors and MI300 accelerators. These high-performance chips are seeing growing adoption in AI workloads, especially by cloud leaders like Microsoft (MSFT) and Alphabet (GOOGL).
Both companies rely on AMD chips to support their AI infrastructure, with Microsoft using them for Azure and Alphabet for Google Cloud.
In addition, the rising demand for AI infrastructure is not just a temporary trend. Recent news shows an increasing need for powerful computing hardware to support AI advancements, benefiting AMD. Analysts are optimistic about the company’s ability to compete with NVIDIA (NVDA) and predict revenue growth of over 28% for Fiscal 2025, up from this year’s estimated 13%.
This should come as no surprise, as AMD’s Instinct MI300 series GPUs have proved pivotal in helping AMD gain ground in the AI market. These GPUs offer superior performance for AI workloads, allowing the company to compete more effectively with NVIDIA’s dominance in the space. Also, the upcoming release of next-generation MI350 chips is expected to strengthen AMD’s position further and drive more revenue from AI-related projects, which aligns with Wall Street’s estimates for a revenue acceleration next year.
Competitive Edge and Innovation in AI
One key argument put forth by investors questioning AMD’s bullish outlook is that the company falls short in both competitive advantage and AI innovation compared to NVIDIA. Some argue that this could limit any notable market share gains. However, I believe the core issue is that many investors either need more understanding of the industry to appreciate AMD’s advancements or are overlooking the broader potential of the company’s strategy.
Specifically, despite the undoubtedly stiff competition from NVIDIA, AMD has managed to carve out a competitive niche in AI infrastructure. The MI300X accelerator, focusing on high-performance AI tasks, has been gaining popularity, particularly as enterprises increase their AI investments. Also, the MI300X is designed to handle complex AI workloads, which places AMD in a solid position to capture more market share, especially since NVDA may not be able to supply the upcoming waves of demand.
Moreover, as previously mentioned, AMD’s strategic partnerships with industry leaders like Microsoft and Google Cloud should strengthen its competitive position. By already providing critical hardware for key AI workloads, I believe AMD is poised to bolster its role as a major player in the AI infrastructure ecosystem, forming a “moat” and solidifying its long-term growth potential.
The Valuation Signals a Strong Case for Rebound
Now that we have the catalysts in place, let’s get into the numbers that support the case for a rebound. At first glance, trading at nearly 45 times this year’s expected EPS of $3.38, AMD stock might appear rather expensive. However, this valuation becomes more justifiable when considering the significant earnings growth Wall Street anticipates in the coming years.
To elaborate on that, as noted earlier, Wall Street anticipates an acceleration in AMD’s revenues by Fiscal 2025, a trend that’s reflected in the company’s earnings estimates. EPS is expected to grow by nearly 60% next year, followed by an additional 37% increase in Fiscal 2026. With such robust growth expected over the next two years, it’s clear how today’s valuation appears reasonable. In fact, at roughly 20 times Fiscal 2026’s projected EPS, I believe AMD stock is attractively priced, especially given the company’s leading position in such an exciting and rapidly evolving space.
Is AMD Stock a Buy, According to Analysts?
Glancing at Wall Street’s sentiment on the stock, AMD features a Strong Buy consensus rating based on 26 Buys and six Hold ratings in the past three months. At $190.25, the average AMD stock forecast suggests a 24.91% upside potential.
If you’re looking for the most accurate analyst to follow when buying and selling AMD stock, Gus Richard of Northland Securities is your top choice. Over the past year, his ratings have delivered an impressive average return of 36.05% and boast a remarkable 81% success rate.
Takeaway
To sum up my bullish stance on AMD stock in the rapidly expanding AI infrastructure and data center markets, I would suggest a strong potential for future growth and for the stock to reach new highs. With meaningful partnerships, such as those with Microsoft and Alphabet, and advancements in high-performance chips like the MI300 series, AMD is gaining ground in AI despite tough competition from NVIDIA.
In the meantime, while its current valuation may seem high, Wall Street’s optimistic outlook on revenue and earnings growth supports the case for a rebound, which makes AMD an attractive option for investors seeking exposure to AI-driven growth.
