Why AMD Stock Just Popped

Advanced Micro Devices (NASDAQ: AMD) stock skipped 3.5% higher through 10:30 a.m. ET Tuesday, and you can thank Wells Fargo for that.

In a note this morning, Wells analyst Aaron Rakers raised his price target on AMD stock to $615 per share, implying he sees 10% upside over the next year.

Image source: Advanced Micro Devices.

Why Wells Fargo likes AMD stock

10% may not sound like much in today's overheated stock market -- especially for a semiconductor stock! But Rakers likes AMD's prospects regardless, writing today on StreetInsider that he sees AMD earning about 3% more than other analysts in calendar year 2027 ($13.40 per share), and 8% more in 2028 ($18.75 per share) -- and on course to a near-term peak earning around $20 per share.

Strong demand for computer CPUs underlies Rakers' bull thesis, driving up chip prices.

The biggest growth will arrive this year, with revenue expected to rise 68% again 2025 numbers, followed by 28% growth in 2027 and 22% more in 2028 -- leaving AMD with annual CPU revenue of about $25 billion. GPU numbers should look even better -- $15.6 billion this year, shooting up to $40.6 billion in 2027 and $63 billion in 2028.

What's next for AMD stock

Big picture, Rakers is seeing a shift from artificial intelligence training (building LLMs) to AI inference (AI answering questions), giving AMD a chance to reset the board and catch up to AI leader Nvidia (NASDAQ: NVDA) by selling more "high core-count server CPUs" in addition to GPUs.

Success isn't guaranteed, though, with Nvidia beginning its Vera CPU push. And at 180 times trailing earnings, AMD is hardly a cheap stock -- arguably six times more expensive than Nvidia at 30 times earnings!

Following Wells Fargo into this trade might not be the right move.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.