Advanced Micro Devices (AMD) has experienced a remarkable growth trajectory, with its stock price nearly doubling in the past six months. This surge comes as the company positions itself as a key player in the artificial intelligence (AI) sector, offering a compelling investment opportunity for those seeking substantial returns.
In the third quarter, AMD reported a significant 36% year-over-year increase in revenue, fueled by strong demand for its high-performance data center chips. The success of its latest fifth-generation Epyc processors and the Instinct MI350 AI graphics processing units (GPUs) has driven this growth. Analysts project that AMD’s revenue could grow at an annualized rate of 30% up to 2029, potentially reaching $96 billion. This optimistic outlook is bolstered by recent high-profile partnerships, including a notable deal with OpenAI to supply a large number of upcoming data center GPUs, positioning AMD as a preferred supplier for the organization behind ChatGPT. Additionally, AMD’s partnership with Oracle to supply chips for an AI supercluster beginning in late 2026 further solidifies its strategic importance in the AI market.
CEO Lisa Su emphasized the company’s robust performance during the recent earnings call, stating, “Our record third-quarter performance marks a clear step up in our growth trajectory as our expanding compute franchise and rapidly scaling data center AI business drive significant revenue and earnings growth.”
Currently, AMD’s stock is trading at $196.94, with a market capitalization of $350 billion. Despite the sharp increase in stock price, analysts remain optimistic, suggesting that the stock is undervalued relative to its strong growth potential. The company has room to improve its profit margins, currently at 10%, especially as demand for data center GPUs increases, echoing the example set by Nvidia, which boasts profit margins over 50%.
Moreover, AMD’s free cash flow has seen impressive growth, tripling year over year in the third quarter. Analysts predict that free cash flow could increase at an annualized rate of 66% through 2029, potentially reaching nearly $31 billion. This strong performance indicates that the stock has significant upward potential over the next five years.
Investors may fear that they have missed the boat following the stock’s rise, particularly after the OpenAI announcement, but experts believe the current price still reflects a strong valuation for a company meeting the growing needs of AI infrastructure. With AMD at just 12 times the consensus estimate for free cash flow in 2029, it presents itself as a promising investment for those looking to capitalize on the AI revolution while seeking steady returns.