In the current environment, it seems antithetical to say anything positive about Advanced Micro Devices (NASDAQ: AMD). The semiconductor stock has lost more than 60% of its value over the last 13 months as industry struggles and tariff-related worries have weighed on the company.
However, the investment case for AMD stock looks completely different, and given its advancements in one part of the chip industry, the stock could be in the perfect position to prosper over the next five years.
Where AMD can excel
Despite tariff-related worries and Nvidia's market lead, it could be AMD's time to succeed with artificial intelligence (AI).
Indeed, AMD and its peers face uncertainty as the U.S. government works to cut off China's GPU supply. The company revealed in an SEC filing that it might face charges of up to $800 million related to that policy change.
Nonetheless, investors should remember that the data center segment, which includes AI accelerators, generated $12.6 billion in revenue. That was a 94% yearly increase, and it is nearly 16 times the estimated charges over the tariff hit.
Moreover, tech giants such as Meta Platforms and Microsoft chose AMD's MI300 accelerator over Nvidia's chips, indicating it has developed a competitive niche. It also plans to release the MI350 this year and the MI400 in 2026 to advance its capabilities, which should close some of the competitive gap and position it to further capitalize on AI.
Additionally, all of these developments come at a time when AMD's forward P/E ratio is just 19. Analysts also believe AMD's overall revenue growth rate will rise from 14% last year to 23% in 2025. A strong performance from the data center segment and signs the down cycle may be ending in its gaming and embedded segments should put AMD in a more favorable light.
Ultimately, the selling in AMD stock appears overdone. The stock isn't cheap today, but its best days still lie ahead. With AMD competing more aggressively in the AI accelerator market, the stock appears to have what it takes to rise to all-time highs and beyond in the next few years.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Will Healy has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
