The Evidence Is Piling Up: AMD Could Be the Best Artificial Intelligence (AI) Stock to Buy Amid the Sell-Off
AMD seems poised to become a long-term winner due to its accelerating growth and a huge addressable market.
In recent months, the semiconductor sector has faced a 12% decline over the past three months, with AMD experiencing its share of volatility due to concerns about the ongoing artificial intelligence (AI) infrastructure spending. However, this downturn has presented an opportunity for savvy investors to acquire a top AI stock at an attractive valuation. As one of the leading players in the AI chip ecosystem, AMD is poised for a long-term rally.
AMD's data center revenue surged by 97% year-over-year in Q3, reaching $8.5 billion. The company's data center segment shows tremendous growth potential, particularly with Alphabet's Google Cloud division expanding its partnership with AMD to utilize its 5th-generation Epyc server CPUs, security fabric, and x86 software for its cloud Tensor Processing Unit (TPU) systems.
Alphabet's cloud business has a backlog of $561 billion, with half expected to be recognized within the next two years, leading to a substantial increase in capital expenditures.
AMD anticipates revenue to grow by over 80% in 2027, driven by robust growth in the data center business, where the server CPU total addressable market (TAM) is projected to reach $220 billion by 2030. With partnerships in place with major hyperscalers and AI companies like OpenAI, Anthropic, Meta Platforms, and Microsoft, AMD is well-positioned to capitalize on this opportunity and drive solid long-term revenue growth.
Analysts' revenue estimates for AMD in the current fiscal year indicate a 51% jump over the previous year, reaching $52.2 billion. Furthermore, AMD's projected earnings per share (EPS) growth is impressive, with a nearly 70% annual increase over the long run. Assuming an earnings growth of 50% in 2029 and 2030, AMD's EPS could reach $57.53 by the end of the decade, assuming a projected EPS of $25.57 in 2028.
If AMD achieves a price-to-earnings (P/E) ratio of 20, its shares could reach $1,150 in just over four years, more than doubling its current price.
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