AMD: Is It Time to Buy the Stock Before Its AI Growth Explodes?

When Advanced Micro Devices (NASDAQ: AMD) reported its first-quarter results recently, it gave a glimpse into why some investors remain excited about the stock's prospects despite its poor performance over the past year. As of this writing, the stock is down about 35% during that span.

This excitement stems from the revenue growth the company is seeing in its data center segment, where sales soared 57% to $3.7 billion. While that revenue is a fraction of what rival Nvidia (NASDAQ: NVDA) generates, the growth is nonetheless robust. AMD credited its strong data center growth to its continued central processing unit (CPU) server share gains and robust growth from its Instinct graphics processing units (GPUs).

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AMD has recently become the leader in the data center CPU space. While GPUs provide the power, CPUs are the brains behind the operations. The market is not nearly as big as the one for GPUs in the data center space, but it's still an important and growing market. In the quarter, several cloud computing providers started to offer new computing options based on AMD's latest EPYC chips. Its CPUs also saw strong growth in the enterprise segment.

AMD saw several hyperscalers (owners of massive data centers) expand their use of its GPUs for generative artificial intelligence (AI) tasks, such as AI search, rankings, and recommendations. It also said that one of the largest AI model companies is now using its GPUs to run a significant portion of its daily inference traffic. It added that big tech companies and AI start-ups are also now using its GPUs to help train their next-gen AI models.

While AMD is unlikely to overtake Nvidia anytime soon, it's still seeing strong growth and solid progress in the data center space. Meanwhile, while the AI training market has been the early focus of companies as they race to build better AI models, the inference market is eventually expected to become exponentially larger. AMD has always competed better in the inference market, so this eventual shift should be a big positive for the company.

Export restriction headwinds

While AMD's data center growth in the quarter was a highlight, not everything was coming up roses for the company. It said that it would lose out on around $700 million in revenue in the second quarter due to new export controls that would affect its MI308 GPU shipments to China. For the full year, it expects the export restriction to be a $1.5 billion headwind, with most of the effect in the second and third quarters.

Nonetheless, the company still forecasts strong double-digit percentage revenue growth in 2025. For Q2, it projected revenue to be $7.4 billion, plus or minus $300 million, representing 27% growth. Given its potential growth opportunities, AMD also plans to increase investments in its product and technology roadmaps.

Turning back to AMD's Q1 results, the company saw overall revenue rise by 36% to $7.44 billion. Adjusted earnings per share (EPS) surged 55% to $0.96. The results topped the analyst consensus of EPS of $0.94 on sales of $7.13 billion, as compiled by LSEG.

Client and gaming segment revenue rose 28% to $2.9 billion, with client revenue soaring 68% to $2.3 billion. The growth was driven by its new high-end Ryzen CPUs, which saw strength in gaming desktop PCs and AI-powered notebooks. Gaming revenue fell 30% to $647 million due to lower semi-custom revenue. The video game console cycle is pretty long in the tooth at this point, but growth for this segment should skyrocket once new consoles are introduced, likely in late 2027 or 2028. Embedded segment revenue, meanwhile, fell 3% to $823 million.

Image source: Getty Images.

Is the stock a buy?

While the export restrictions on China throw a bit of a wrench in AMD's growth story, the company is otherwise seeing very good momentum in the data center space. It's the market share leader in server CPUs, which should continue to be a solid, growing market.

However, the company's biggest long-term opportunity may lie in the growing demand for AI chips focused on inference rather than training. AMD's GPUs have already carved out a solid position in the inference segment, which should help drive growth given that the inference market is expected to surpass training in size over time.

With its stock trading at a forward price-to-earnings ratio (P/E) of 26.5 times 2025 analyst estimates and at about 18 times 2026 estimates, AMD's valuation has come down a lot over the past year and is now at an attractive level.

AMD PE Ratio (Forward) data by YCharts.

Given the potential AI opportunities in front of AMD, I think now could be a good time to begin accumulating shares of the stock. If the company can grab market share in the inference market, AMD stock should have a lot of upside from here.

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Geoffrey Seiler 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.