Why AMD Stock Gained 14% in May

Shares of Advanced Micro Devices (NASDAQ: AMD) were moving higher last month after the chipmaker posted better-than-expected results in its first-quarter earnings report, signed a deal with a Saudi Arabian artificial intelligence (AI) start-up, and benefited from the broader recovery trend in the market as investors seemed to look past tariff concerns.

As a result, AMD finished the month up 14%, according to data from S&P Global Market Intelligence. As you can see from the chart, most of the stock's gains came in the second week of the month, when its earnings report came out.

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AMD data by YCharts

AMD is on the rebound

Coming into May, AMD stock had fallen sharply over the last year, as investors had bid up the stock on hopes for its AI chips. However, after a reset in the price, investors are returning to the stock, as it's delivering strong growth, including in the data center, where AI growth is taking place.

AMD gained 2% on its earnings report on May 7, as the company reported 36% revenue growth to $7.44 billion, well ahead of the consensus at $7.12 billion. In the data center segment, revenue jumped 57% to $3.7 billion, driven by strong growth of EPYC CPU chips and Instinct GPU chips, which compete directly with Nvidia. The client segment, which serves the PC market, was strong as well, with revenue up 68% to $2.3 billion.

On the bottom line, adjusted earnings per share jumped from $0.62 to $0.96, edging out estimates at $0.93.

The stock rallied in the subsequent days following that report as the U.S. and China agreed to lower tariff rates, and after the Trump administration said it would rescind "AI diffusion" rules, which restricted shipments of advanced chips to certain foreign countries.

That paved the way for AMD to make a deal with Humain, a Saudi Arabian AI-start-up, as the two companies announced that they would form a $10 billion collaboration to deploy 500 megawatts of AI computer capacity over the next five years.

Additionally, AMD announced a $6 billion share repurchase authorization, showing the company aims to take advantage of the discount in the share price.

Image source: Getty Images.

What's next for AMD?

With momentum building in the data center and a strong performance in the client segment, AMD looks to be in good shape for further gains. The company doesn't have to catch Nvidia to be successful in AI, as there as plenty of spillover demand, as well as companies looking for cheaper options.

That should favor AMD as the AI boom continues to play out.

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Jeremy Bowman 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.