Prediction: Advanced Micro Devices Stock Will Soar Over the Next 5 Years. Here's 1 Reason Why.

Share prices of Advanced Micro Devices (NASDAQ: AMD) have surged to new highs this year. Some investors may feel nervous about buying a stock that has risen sharply over a relatively short period, but one crucial reason the stock still offers significant long-term upside is its strong growth in free cash flow.

AMD's free cash flow has increased by 386% since 2023. This reflects strong demand for AMD's high-end chips, which are utilized in data centers for artificial intelligence (AI) applications. The company is targeting a massive addressable market for its data center chips, which could send the stock soaring over the next five years.

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Why buy AMD stock?

AMD reported strong year-over-year revenue growth of 36% in the third quarter. The launch of AMD's MI400 series of data center chips next year is expected to drive significant revenue growth. OpenAI is already on board to deploy AMD's chips for AI workloads in the coming years, which management expects to generate over $100 billion in revenue.

AMD sees a $1 trillion addressable market. Analysts currently project AMD's free cash flow to surge from $2.4 billion on a trailing-12-month basis to nearly $23 billion by 2029. This could potentially send AMD stock to over $500 in the next five years, as the shares trade at just 17 times 2029 free cash flow estimates.

John Ballard has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.