This Artificial Intelligence (AI) Stock Looks Set for a Second-Half Comeback

Yahoo

4 days ago

Key Points
AMD's upcoming MI400 release could be a game changer in the AI accelerator industry.
Its embedded and gaming segments are likely coming out of down cycles.
The forward P/E ratio implies the stock may not be as expensive as some might think.
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Many artificial intelligence (AI) stocks have prospered as investors have become more open to the technology's potential. This is especially true for stocks like Nvidia and Palantir Technologies, whose successes are responsible for the AI boom in large part.
Still, that boom has certainly not included all AI stocks, and many of them have had their share of struggles. Nonetheless, as their competitive advantages become more apparent, such stocks have tended to boom. With that in mind, one AI stock looks likely to stand out with a second-half comeback.
The comeback stock
The artificial intelligence stock set for a recovery in the second half of 2025 is Advanced Micro Devices (NASDAQ: AMD). Admittedly, this may seem like a strange pick given its performance in 2024. After an intra-day peak of more than $227 per share in March 2024, AMD stock steadily fell.
Continued struggles in the gaming and embedded segments weighed on the stock, and investors further soured on the stock as its competitive lag with Nvidia in the AI accelerator market became more apparent. In early 2025, DeepSeek's breakthrough with lower-cost AI chips did not dampen the pessimism, as AMD stock briefly lost as much as two-thirds of its value in a 13-month period.
However, April's closing low at just above $78 per share came amid investor concern over "Liberation Day" when the Trump administration unveiled its tariff plan. From there, the semiconductor stock recovered along with the market and further accelerated on June 12 when AMD announced the upcoming MI400 GPU.
This next-generation chip will come installed in a server rack called Helios, and many analysts believe this will make AMD a more formidable competitive threat to Nvidia. That anticipation has helped AMD stock more than double from its April low.
Improved financials
Additionally, although its financials are forward-looking, they point to improvements in the other concerns with AMD, namely the struggling embedded and gaming segments.
In the first quarter of 2025, embedded revenue dropped by only 3% year over year, compared to the 33% drop in 2024. Additionally, although gaming revenue still fell by 30% in Q1, it was a considerable improvement from the 58% decline in 2024.
With that, overall revenue in Q1 was $7.4 billion, a 36% yearly gain. In comparison, revenue increased by 14% in 2024, representing a dramatically improved performance. That enabled net income to improve considerably, as the $709 million profit in Q1 was far above the $123 million profit in the year-ago quarter.
Moreover, despite significant gains, the stock appears poised to continue rising in the second half of the year, and it is still more than 30% below its all-time high.
Furthermore, notwithstanding the 116 P/E ratio based on trailing earnings, its forward P/E ratio of 40 is arguably a bargain considering the massive revenue and profit gains of the last quarter. As investors anticipate the release of the MI400, it should bode well for AMD for the rest of 2025 and beyond.
AMD in the second half of 2025
Amid improving financial performance and technical gains in a key area, the second half of 2025 looks promising for AMD. To be sure, the stock has suffered as investors worry about its role in the AI accelerator industry, and indeed, segments such as its gaming and embedded segments suffered through a severe downturn.
Nonetheless, the chip industry is cyclical, and it appears the gaming and embedded segments have begun to recover. More importantly, the MI400 could make AMD a more significant force in the AI accelerator industry as it hopefully makes competitive strides in its battle with Nvidia.
Finally, while its P/E ratio makes the stock expensive, its much lower forward earnings multiple arguably makes AMD stock a bargain relative to the company's growth rate. Even if AMD does not achieve new all-time highs this year, investors have good reason to be bullish during the second half of 2025 as its prospects become much brighter.
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Will Healy has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
This Artificial Intelligence (AI) Stock Looks Set for a Second-Half Comeback was originally published by The Motley Fool
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