3 Reasons to Buy AMD Stock Like There's No Tomorrow

By Harsh Chauhan | May 09, 2025, 10:15 AM

This has been a rough year for Advanced Micro Devices (NASDAQ: AMD) investors so far, with shares of the chipmaker declining 18% in 2025, as of this writing, but the company's latest quarterly report indicates that investors may be making a mistake by not buying its shares in the wake of its pullback.

AMD released first-quarter results on May 6. Its numbers were better than analysts were expecting, while the outlook also exceeded Wall Street's expectations despite challenges posed by restrictions on the export of its advanced artificial intelligence (AI) chips.

Let's take a closer look at AMD's numbers and see three reasons why buying this semiconductor stock is a no-brainer right now.

The acronym AI written on an abstract integrated circuit.

Image source: Getty Images.

1. AMD's data center business is growing rapidly thanks to AI

AMD delivered a 36% year-over-year increase in revenue in Q1 to $7.44 billion, while its adjusted earnings increased at a faster pace of 55% to $0.96 per share. The company's data center business played a central role in driving this impressive growth during the quarter, as it produced nearly half of its top line and grew 57% from the year-ago period.

Management credited the healthy growth in the data center segment to the strong demand for its server central processing units (CPUs) and graphics processing units (GPUs). Demand for these data center chips has been increasing at a nice clip thanks to growing demand for AI workloads in the cloud.

Specifically, AMD says that revenue from sales of data center GPUs "increased by a significant double-digit percentage year over year," driven by the increasing adoption of its MI300 series of data center chips. The company not only won new customers for its server GPUs, but also saw increased adoption by existing cloud customers. As CEO Lisa Su remarked on the conference call:

Several hyperscalers expanded their use of Instinct accelerators to cover an increasing range of generative AI search, ranking, and recommendation use cases. We also added multiple tier one cloud and enterprise customers in the quarter, including one of the largest frontier model developers that is now using Instinct GPUs to serve a significant portion of their daily inference traffic.

Meanwhile, the market share gains achieved by AMD in the server CPU market also contributed to the robust growth of its data center business. The chipmaker's server CPU market share increased by two percentage points year over year in the fourth quarter of 2024 to 25.1%, and management's comments indicate that the trend continued in the first quarter of this year.

Major cloud players such as Amazon, Oracle, Alphabet's Google, and others launched multiple cloud instances powered by AMD's Epyc server processors in Q1. AMD management expects to continue gaining share in the server CPU market in the future as the adoption of its next-generation Epyc server processors picks up.

All this indicates that AMD is in a solid position to capitalize on the secular growth of the AI data center market, which is expected to clock 28% annual growth through 2030. However, this is not the only reason why you should be buying this stock right now.

2. AI PCs are giving the client processor business a nice shot in the arm

Market research firm IDC estimates that global personal computer (PC) shipments increased by nearly 5% year over year in the first quarter of 2025. This gave AMD's client processor sales a nice boost. The company reported an impressive 68% increase in client processor revenue to $2.3 billion in Q1 on the back of higher demand for its Ryzen CPUs in both desktops and laptops.

AMD points out that it witnessed an impressive increase of more than 50% in desktop channel inventory sales in Q1. What's more, sales of the company's AI-capable PC processors increased by more than 50% on a sequential basis. At the same time, commercial PCs are turning out to be another key growth driver for AMD. Its sell-through of commercial PC processors was up by 30% from the year-ago period.

That wasn't surprising, as AMD has been adding new commercial PC customers at a nice pace. This has led to a solid increase of 80% in the number of systems powered by its processors this year. Looking ahead, AMD believes it can keep growing at a faster pace than the broader PC market, thanks to the expanding demand for its desktop, notebook, and commercial processors.

So it is easy to see why AMD's guidance suggests that it is on track to deliver strong levels of growth going forward as well.

3. The guidance and valuation make the stock a solid buy now

AMD has guided for $7.4 billion in revenue for the second quarter of 2025 at the midpoint. That would translate into 27% growth from the year-ago period, and the number is higher than the $7.25 billion consensus estimate. What's worth noting is that AMD expects to lose around $700 million in revenue in the current quarter on account of restrictions on the export of its chips to China.

However, the health of the overall AI chip market and growing adoption of its chips across a diversified customer base in both servers and PCs should allow it to overcome that headwind and deliver healthy year-over-year growth. Even better, AMD says that its Ryzen CPUs and data center chips are driving an increase in its margins, which is why it expects non-GAAP (generally accepted accounting principles) gross margin to increase by a percentage point from the year-ago quarter in Q2 to 54%.

Investors, therefore, can expect AMD to sustain solid growth levels in the current quarter and beyond. Consensus estimates are projecting a 21% increase in AMD's earnings in 2025, followed by a stronger jump of 48% next year. That's why buying AMD right now looks like a smart thing to do, considering it's trading at 24 times forward earnings, a discount to the tech-laden Nasdaq-100 index's earnings multiple of 29.

Moreover, a price/earnings-to-growth ratio (PEG ratio) of just 0.49, as per the company's projected annual earnings growth for the next five years, according to Yahoo! Finance, suggests that AMD is undervalued when we take its growth potential into account. So, investors looking to buy a growth stock at an attractive valuation that can help them benefit from secular growth trends such as AI should consider buying AMD hand over fist before it could start soaring.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, and Oracle. The Motley Fool has a disclosure policy.

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