Summary

• Advanced Micro Devices, Inc.'s stock has declined 53% over the past year, but it appears oversold and may have bottomed around the $110-100 support level.

• Despite recent challenges, AMD's data center revenue surged 69% YOY, and the company projects solid growth in H2 2025.

• AMD's forward P/E ratio has dropped below 18, making it a bargain, as the market may have overreacted to its AI GPU struggles.

• My 12-month price target for AMD is $180-200, with potential long-term growth leading to a stock price of $500 or higher by 2030.

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Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has been brutalized over the past year, dropping from a high of around $227 to just around $107 recently. I called AMD a top pick for 2025 late last year, but the stock has declined by about 10% since that article. AMD has also been one of the more challenging "trades" recently, but despite the near term turbulence, I remain bullish on AMD in the intermediate and long-term.

So, why was the stock so high around a year ago? It was the AI optimism, and evidently, expectations got well ahead of AMD's stock price.

AMD 1-Year Chart

AMD (StockCharts)

However, we're talking about a massive 53% decline, an essentially bear market AMD's stock has endured over the last 11-month period. The million-dollar question is whether the decline of this magnitude is justified, and will the stock likely stay around here, or has the market overreacted, turning AMD into a strong buy around these ultra-low levels?

From a technical perspective - AMD may have bottomed around the critical $110-100 support level. We witnessed a bullish reversal on massive volume several sessions ago after AMD crashed post its recent earnings announcement to below $107. AMD is now dramatically below its 200-day MA (about 33%), illustrating that the stock is considerably oversold.

Other technical indicators like the CCI, RSI, the full stochastic, and others illustrate a similar oversold dynamic in AMD's stock. I also want to point out that the RSI has stopped making new lows relative to the stock, suggesting a shift to a more positive technical momentum may arrive soon.

Why AMD Dropped So Much

AMD became overbought in early 2024 for several reasons. First, the stock became highly overbought technically, as it surged by nearly 150% in just around four months. Secondly, the stock became significantly overvalued from a fundamental perspective, as it spiked to a valuation of about a 45 on a forward P/E basis. The stock was around $225 and EPS estimates were roughly $5 for 2025. Thirdly, the wave of AI optimism was too big for AMD to sustain at the time, as we've seen its AI GPU sales expectations reduced for 2025.

AMD Has Become Cheap

The market has become so pessimistic toward AMD that the stock has become a bargain here. AMD had a forward P/E ratio of about 40-50 around this time last year. Now, AMD's consensus 2026 EPS estimate is around $6.34, putting its forward P/E ratio below 18.

AMD earnings (seeking alpha)

We should also note that while the lower end EPS estimate is around $5, higher end estimates range to around $9, suggesting AMD could earn considerably more than $6.34 in a slightly more bullish scenario next year.

In my view, AMD's situation may not be as dire as its recent price action implies. Instead, AMD is going through a challenging stage and is not hitting its AI GPU sales targets because of software related challenges, and because of Nvidia's (NVDA) continued dominance in the space.

The gap between AMD and Nvidia could have been narrower by now, with AMD having more market share in the lucrative AI enterprise server market. Unfortunately, AMD continues trailing Nvidia significantly due to software and other challenges in the space.

However, this dynamic does not mean that AMD's position won't improve, or that Nvidia is destined to continue dominating the AI GPU space at this unprecedented pace. The market may be making premature conclusions, and it should not leave AMD out of the AI GPU race.

AMD's Data Center Revenue Surges 69%

While the reaction to AMD's recent earnings was mixed, AMD delivered very solid results. First, AMD's data center grew substantially, accounting for 50% of 2024 sales. Data center sales increased by 69% YOY in Q4, reaching $3.9B. Moreover, the MI350 series production will be pulled forward to mid-2025 due to strong customer demand, the CEO said.

This dynamic suggests that while H1 may remain lackluster, AMD may achieve substantially higher than expected sales in H2 2025. Since the market is a forward-looking mechanism, we should be purchasing the stock now, as the outlook could brighten for the second half.

AMD also reported in line EPS of $1.09, and sales of $7.7B, a 24% YOY increase and a $170M beat. AMD also provided solid Q1 guidance for approximately $7.1B, better than the consensus estimate for $6.99B. This would represent about a 30% YOY sales growth, and the company projects a relatively high 54% gross margin.

AMD is taking measures to improve its software to better compete with Nvidia, and to carve out a more significant piece of the lucrative data center market. While more recent "downbeat" estimates imply AMD may achieve about $7-8B in AI data center GPU sales in 2025, its total data center sales may reach around $15-16B. Last year AMD had about $5B in AI data center GPU sales but the broader data center segment clocked in a record $12.6B in sales.

AMD highlights (AMD)

AMD's data center segment sales surged by 94%YoY in 2024. While AMD reached an impressive amount of data center GPU sales (over $5B), much of the revenue came from its CPU EPYC processors, as AMD continues taking market share from Intel in the datacenter CPU space.

AMD could also benefit from the DeepSeek (DEEPSEEK) phenomenon, as enterprises seek cheaper options to Nvidia, or incorporate more CPUs instead of GPUs into their AI strategies. Therefore, given AMD's CPU and GPU data center sales potential, we could see AMD reporting $15-16B or more for the data center segment in 2025.

AMD's Sales Could Pop to $33 Billion This Year

AMD sales estimates (seeking alpha)

AMD's data center growth and solid growth in its client segment should offset some weakness in its gaming and embedded segments. Client segment sales reached $7.1B in 2024, showing a solid 52% YOY growth rate. Therefore, we could see sales in this space increasing to about $10B this year. Potential rebounds in gaming and embedded segments could drive sales to $32-33B or higher this year.

Moreover, we should see continued healthy growth next year, which could be better than expected, if we get a resurgence in AMD GPU demand. Therefore, AMD's sales could increase to about $40-42B in 2026, potentially leading to substantial EPS increases.

The AI data center is a massive market, which is projected to continue growing long term. AMD could play a more significant role in this lucrative market in future years. This dynamic could lead to considerable sales and profitability growth, as well as possible multiple expansion.

Recently, AMD's earnings multiples have become very depressed, and its forward P/E ratio could rebound into the 25-30 range or higher in future years. However, keeping the forward P/E multiple modest around 25-27 with sales and profitability increases could enable AMD's stock to rise to $500 or higher by 2030.

Looking shorter term: My 12-month AMD price target range remains $180-200.

Risks to AMD

There are of course risks to investing in AMD. For instance, AMD could continue having considerable issues with its AI GPUs, leading to lower than expected growth in this crucial segment. AMD faces serious adversaries like Nvidia and has software and other challenges it must address. On the other hand, AMD must continue innovating on the CPU front and other areas to stay ahead of Intel and other competitors. Therefore, AMD must execute near flawlessly, and it must regain its AI edge.

If AMD continues losing its AI leading image, its stock may continue suffering, especially in the near term. Investors should consider these and other risks before investing in AMD.