1 Reason to Buy Advanced Micro Devices Stock
Key Points
AMD’s surging free cash flow suggests a stronger business than its stock price reflects.
Strong demand for advanced chips used in data centers is fueling the company's profitability.
- 10 stocks we like better than Advanced Micro Devices ›
Shares of Advanced Micro Devices (NASDAQ: AMD) pulled back to start 2026 and were recently down about 8% year to date, although the stock has recovered. Investors are weighing the stock's high price-to-earnings multiple against risks in the AI chip market, where it is a distant second to Nvidia's leadership.
However, investors might be overlooking AMD's surging free cash flow and what this says about the real strength of the company's business.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Image source: Getty Images.
AMD's free cash flow nearly doubled year over year to $2.1 billion in the fourth quarter. This brought its full-year free cash flow from continuing operations to a record $5.5 billion, which followed the company's surging data center revenue.
During the fourth-quarter earnings call with analysts, CEO Lisa Su credited the company's revenue and free cash flow to "broad-based demand for high-performance computing and AI products." The company reported a 34% year-over-year increase in revenue, with adjusted net income up 42% -- also hitting a record of $2.5 billion.
While AMD faces risks competing in the AI chip market, the surging free cash flow reflects a business that might be more competitively positioned than is priced into the stock. The shares are trading at 42 times 2026 free-cash-flow estimates, but that valuation multiple drops to 16 on 2028 estimates.
AMD's upcoming data center products, such as its Helios computing platform for AI workloads, could sustain growth in higher-margin products that sustain its free cash flow momentum, making the stock a rewarding investment over the next several years.
Should you buy stock in Advanced Micro Devices right now?
Before you buy stock in Advanced Micro Devices, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Advanced Micro Devices wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $519,015!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,086,211!*
Now, it’s worth noting Stock Advisor’s total average return is 941% — a market-crushing outperformance compared to 194% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of February 28, 2026.
John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
Recommended Articles
