Wall Street Says This Artificial Intelligence (AI) Stock Is Overvalued. Here's Why I Disagree

The artificial intelligence (AI) revolution is in full swing, and several companies are capitalizing on it. The list includes Advanced Micro Devices (NASDAQ: AMD). Investors have taken notice: The company's shares have soared over the past 12 months. But have they risen too much, too fast? Some Wall Street analysts certainly think so. Based on its current average price target, AMD could dip from its current levels. Let's find out whether it's best to avoid this company right now.

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Is it just the beginning?

AMD's shares have gained 279% over the past year. But the company's current Wall Street average price target (according to Yahoo! Finance) is $525.40, implying a downside of about 5% from current levels. To Wall Street's credit, AMD looks expensive by at least some valuation metrics. The company is trading at 79.4x forward earnings, compared to an average of just 21.4x for information technology stocks. However, there are also good reasons to be bullish on the stock.

AMD is a leader in the server CPU (Central Processing Unit) market, putting it in a strong position to profit from the agentic AI boom. AI agents are autonomous systems that can perform a range of tasks without direct human input. Some voices within the industry believe AI agents will take over. Nvidia's (NASDAQ: NVDA) CEO, Jensen Huang, thinks there will eventually be billions of them.

Since AI agents run on CPUs, demand for AMD's market-leading processors could soar. This could be the start of a sustained run for the company that might, to some extent, mirror Nvidia's performance over the past few years. And it's worth remembering that some investors and analysts thought Nvidia was overvalued the entire time. Yet the semiconductor specialist managed to defy expectations, as the AI market proved much larger than many had anticipated.

Something similar (though likely not quite as impressive) could happen with AMD, given that the company has gained market share in the server CPU industry in recent quarters, boasts a wide moat from its deep expertise and high switching costs, and could tap into an opportunity worth more than $120 billion by 2030, expanding at a compound annual growth rate (CAGR) of 35% through then, according to management.

Perhaps the most impressive thing about this projection is that in November 2025, AMD had estimated that the market would register a CAGR of 18% through the next three to five years. The company was forced to almost double that forecast six months later, strongly suggesting that demand for its products is accelerating. That's why, in my view, AMD stock is still a buy.

Prosper Junior Bakiny has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.