What's Next For AMD Stock After Recent 20% Gain
Advanced Micro Devices stock (NASDAQ:AMD) increased by more than 4% during Tuesday's trading session and has risen by nearly 20% over the last month. What factors are contributing to the stock's upward trend?
Tuesday saw AMD unveil a $10 billion agreement with Humain, a startup based in Saudi Arabia supported by the nation's sovereign fund. Humain intends to procure CPUs, GPUs, and software from AMD to enhance its data centers and AI infrastructure. Overall, Humain anticipates constructing data centers with approximately 1.9 gigawatts of power capacity by 2030. Importantly, Humain asserts that the arrangement with AMD is to avoid being dependent on a single vendor for AI-related hardware. This message is favorable for AMD stock, as we have noted that customers diversifying their suppliers away from Nvidia inherently presents an opportunity, especially considering the rapidly expanding AI market. Furthermore, sovereign AI—essentially state-funded initiatives for AI capabilities—is an area that semiconductor companies are increasingly focusing on, aiming to lessen reliance on a client base predominantly made up of large U.S. technology firms like Amazon, Google, and Microsoft. It's encouraging that AMD is also securing contracts in this sector.
AMD's results for Q1 surpassed expectations, with its outlook for Q2 also exceeding predictions. Revenue grew by 36% to $7.44 billion in Q1, while earnings reached $0.96 per share. The growth was driven by robust data center sales, which surged 57% to $3.7 billion, thanks to increased GPU and CPU shipments. For quite some time now, AMD's CPUs have been gaining market share from Intel in the data center segment. Although AMD's GPU products do not match Nvidia's offerings at the high end, the AI surge is benefiting the overall market, with new large-scale models such as OpenAI's GPT-4o and China's DeepSeek R1 poised to drive increased demand for GPUs. As the company secures new GPU and AI data center agreements, and customers seek to diversify their chip sources, AMD stands to gain.
Earlier this month, AMD mentioned that new U.S. export restrictions targeting its MI308 AI chips could cut its 2025 revenue by $1.5 billion. The company also indicated that it might incur a charge of up to $800 million related to inventory, purchasing commitments, and reserves associated with these restrictions. According to the new regulations, AMD must secure a license to ship advanced AI processors to China. This was perceived as a setback since China constitutes about 24% of its revenue. However, there seems to be a silver lining. U.S.-China trade relations appear to be improving, with both nations agreeing to suspend triple-digit tariffs for the next 90 days and making progress in discussions over the previous weekend. This fosters hope that chip export restrictions may soon be reviewed.
The rise in AMD stock over the last four years has not been steady, with annual returns showing much more volatility compared to the S&P 500. The stock recorded returns of 57% in 2021, -55% in 2022, 128% in 2023, and -18% in 2024. The Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has been significantly less volatile. Moreover, it has outperformed the S&P 500 comfortably over the last four years. What accounts for this? As a collective, HQ Portfolio stocks have delivered superior returns with lower risk compared to the benchmark index, offering a smoother performance as illustrated in HQ Portfolio performance metrics. Considering the current unpredictable macroeconomic landscape concerning rate reductions and ongoing international conflicts, could AMD experience a repeat of the underperformance seen in 2022 and 2024 compared to the S&P over the upcoming 12 months, or will it witness a notable surge?
We assess AMD stock at approximately $107 per share, which aligns closely with its current market price. For further insights, see our analysis on AMD Valuation: Is AMD Stock Expensive or Cheap? for more information regarding AMD's valuation and its positioning relative to competitors.
Investing in a single stock like AMD can be risky. Conversely, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has a history of consistently outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks have yielded better returns with lower risk compared to the benchmark index, offering less volatility as demonstrated in HQ Portfolio performance metrics.
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