The past year has been underwhelming for Advanced Micro Devices (AMD +3.47%) investors as shares of the chipmaker have dropped more than 20% during this period, but the recent stock price action suggests that a turnaround is on the way.
AMD stock hit a 52-week low on April 8. It has jumped an impressive 61% since then. But will this semiconductor giant be able to sustain its momentum in the long run and deliver solid gains to investors over the next five years?
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AMD's growth should take off over the next five years
AMD's recent quarterly reports make it clear that the chipmaker's business is moving in the right direction. Its revenue in the first quarter of 2025 increased an impressive 36% year over year, while its guidance for the current quarter points toward another nice year-over-year increase of 27%.
The chipamker's data center and client processor businesses are driving the bulk of this growth. The company's data center graphics processing units (GPUs) and central processing units (CPUs) are in healthy demand from cloud computing customers who are deploying them in artificial intelligence (AI) servers for model training and inference. This explains the 57% year-over-year increase in AMD's data center revenue in Q1.
Importantly, AMD sees a massive increase in its addressable opportunity in the data center segment over the next few years. At its recently held Advancing AI investor event, AMD pointed out that the data center AI accelerator market is on track to clock an annual growth rate of more than 60% through 2028, generating more than $500 billion in revenue by 2028.
NASDAQ: AMD
Key Data Points
There is no doubt that Nvidia is the dominant company in this market with a share of 92%, but AMD is trying to catch up thanks to its product development moves. The chipmaker has just unveiled its MI350 series of data center GPUs, claiming that it packs 4 times more computing power than the previous generation offering, apart from achieving a 35-fold increase in AI inferencing.
Analysts estimate that the new MI350 family of processors will help AMD close the gap with Nvidia's Blackwell offerings. Moreover, AMD's future product roadmap should allow it to keep pace with Nvidia as the former is forecasting a tenfold jump in performance with its MI400 series of processors that are scheduled for launch next year.
So don't be surprised to see the adoption of AMD's data center GPUs increasing in the future thanks to the updated and more capable AI chips that they bring to the market. As a result, there is a good chance of AMD's data center GPU market share increasing from last year's level of 4%. If the company can carve out a share of even 10% of this market by 2030, its data center GPU revenue alone could increase to $50 billion (based on the company's AI chip revenue forecast mentioned above).
That would be an increase of over 10x from the $5 billion in data center GPU revenue that AMD generated last year. Given that analysts are expecting AMD to end 2025 with just under $32 billion in revenue, the data center GPU business can alone turn out to be a terrific growth driver for the company over the next five years.
This, however, is not the only catalyst that has the ability to supercharge AMD's growth over the next five years. The next generation of gaming consoles from Sony and Microsoft, which are expected to hit the market in 2027 and 2028, are likely to give AMD's business a nice lift over the next five years. AMD has reportedly landed the $30 billion contract to manufacture the chip for powering Sony's upcoming PlayStation 6 console.
Microsoft's next-generation Xbox console is also expected to be powered by AMD hardware. As such, the company seems on track to capitalize on multiple multibillion-dollar markets through 2030.
Expect the stock to deliver solid gains over the next five years
According to Yahoo! Finance, AMD has a price/earnings-to-growth ratio (PEG ratio) of just 0.69 based on the potential annual earnings growth it could deliver over the next five years. The PEG ratio is a forward-looking valuation metric that's calculated by dividing a company's trailing earnings multiple by its projected annual earnings growth. A reading of less than 1 means that a stock is undervalued when you take into account the potential growth it could deliver.
AMD's reading shows that it is quite undervalued based on the growth that it could clock in the future. The following chart indicates that the company's bottom-line growth is expected to remain solid in 2026 and 2027.
AMD EPS Estimates for Current Fiscal Year data by YCharts
Assuming the company can clock an earnings growth rate of even 15% in the three years after 2027, its earnings could jump to $10.57 per share by the end of the decade (using 2027's forecast earnings of $6.95 per share as the base). AMD has a five-year average forward earnings multiple of 31. But even if it trades at a discounted 25 times earnings after five years and hits the estimated earnings per share calculated above, its stock price could jump to $264.
That would be a 112% jump from current levels. So, investors looking to buy an AI stock that could deliver healthy gains over the next five years can consider buying AMD given its solid prospects.
