1 Unstoppable Stock-Split Stock to Buy Before It Joins the $1 Trillion Club

Advanced Micro Devices (NASDAQ: AMD) has become one of the biggest names in the artificial intelligence (AI) chip race, and its current growth cycle could have much further to run. In fact, management expects its sales growth to accelerate as production of its newer platforms ramps up. That means with a booming data center business, multiple growth opportunities, and a history of stock splits, AMD could be the next company to join the $1 trillion club.

Here's a closer look at how its role in AI is growing.

Image source: Getty Images.

AMD is becoming a much bigger name in AI infrastructure

A stock split creates more shares of a company at a lower price, but it doesn't change anything fundamental about that company's real value, or the nature of its underlying business. It does, however, make the stock cheaper on a share-price basis, which can make it easier for retail investors to buy. That can act as a catalyst to boost the share price a bit.

And AMD has a long history of stock splits, having completed six over the years. Its most recent was a 2-for-1 split in 2000. Since then, AMD has become one of the most important companies supplying the compute power behind AI.

Its current strategy focuses on providing end-to-end AI compute systems that include graphics processing units (GPUs), central processing units (CPUs), and networking hardware. That broad approach could make AMD a more valuable partner for hyperscalers.

In fact, AMD has already announced collaborations with some of the biggest names in the AI space, including Anthropic, Meta Platforms, Microsoft, and OpenAI. Those customers will use its newer Helios rack-scale systems, which combine Instinct GPUs and Epyc CPUs.

On top of that, the AI compute market is enormous and continues to expand. As cloud providers, tech companies, and governments continue to invest in AI infrastructure, there could be plenty of room for more than one winner in the data center processor space.

That means AMD's path toward the $1 trillion club looks more credible. A roughly 20% gain would lift AMD's $834 billion market cap to $1 trillion. Once it hits that market cap, a stock split could provide another catalyst.

But AI isn't the company's only growth engine.

AMD has more than one way to win

Although AI has become its biggest narrative, AMD also has businesses across PCs, gaming, embedded systems, and other markets.

Its client business continued growing in the quarter, supported by demand for Ryzen processors. Meanwhile, its embedded segment also posted growth across sectors such as aerospace and defense, automotive, communications, and industrial markets. This diversification gives investors something that many AI-focused companies don't have: multiple growth drivers.

That matters because it gives AMD more avenues for growth as its products become more widely adopted across multiple industries. The company isn't just selling chips for PCs and data centers. Its products can also have roles in everything from communications infrastructure to vehicles and industrial automation.

AMD's gaming business has been under pressure recently, but it remains strategically important. The company supplies technology for gaming PCs and the broader graphics ecosystem, giving it another way to participate as demand improves.

Still, the biggest risk is competition. Nvidia remains the dominant player in AI compute, while AMD also faces competition from Intel and from large tech companies that are also its customers developing their own custom AI chips.

The company also operates in a cyclical industry. Any slowdown in AI spending, supply constraints, or weaker demand could put pressure on its growth and stock price.

AMD looks well positioned for what could be its next big chapter. The remaining question is whether the stock's valuation makes sense.

Is AMD stock a buy at its current valuation?

AMD isn't just riding the AI hype. It's building a much bigger business around data centers, PCs, and other growing compute markets.

Today, AMD stock trades at a forward price-to-earnings (P/E) ratio of about 27, which looks fairly reasonable for a company with its opportunities.

Plus, at least 40 of the 53 Wall Street analysts covering the stock rate it a buy, and their average price target of about $659 suggests potential upside of about 30%.

With its history of stock splits and plenty of room to expand, AMD could be an attractive stock to own before it joins the $1 trillion club.

Rick Orford has positions in Meta Platforms and Microsoft. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.