Advanced Micro Devices (NASDAQ: AMD) has been a standout performer this year, with its shares surging over 90% year to date. The momentum continued after the semiconductor company reported strong first-quarter results and issued upbeat guidance, indicating that there could be more upside potential for the stock.
The company’s earnings results and outlook paint a positive picture for AMD’s future prospects. With the increasing importance of agentic AI, the demand for data center central processing units (CPUs) is on the rise. AMD is well-positioned to capitalize on this trend, projecting the server CPU total addressable market (TAM) to reach $120 billion by 2020, with a compound annual growth rate of over 35%. This is a significant increase from its previous estimates and positions AMD to capture more than 50% of this market.
In the first quarter, AMD saw data center CPU revenue grow by more than 50%, with expectations of further acceleration to 70% in Q2 and continued strength throughout 2027. The company’s next-generation CPUs are set to drive this growth, with higher core counts that are essential for agentic AI tasks. Additionally, AMD reported a 38% year-over-year increase in Q1 revenue, with adjusted gross margin at 55% and adjusted earnings per share up by 43%.
AMD’s data center revenue surged by 57% in the quarter, supported by strong growth in both CPUs and graphics processing units (GPUs). The client and gaming segment also saw revenue growth, with AMD continuing to gain market share in the PC industry. Looking ahead, AMD expects Q2 revenue to grow by 46% year over year to $11.2 billion, with an adjusted gross margin target of 56%.
Despite the stock’s significant gains, AMD still presents a compelling investment opportunity. The company’s leadership in the server CPU market, coupled with upcoming GPU deals with OpenAI and Meta Platforms, positions it for continued growth. While AMD’s stock may not be cheap, trading at a forward P/E ratio of 56 times 2026 analyst estimates, its forward PEG ratio of 0.3 suggests that it is undervalued. This indicates strong upside potential for the stock, even after its recent impressive performance.
In conclusion, Advanced Micro Devices remains a strong buy based on its robust financial performance, market positioning, and growth prospects in the data center and AI sectors. Investors looking for exposure to the semiconductor industry should consider adding AMD to their portfolios for long-term growth potential.
