Where Will AMD's Stock Be In 3 Years? The Answer May Surprise You.

Core Viewpoint - AMD is positioned as a secondary player in the AI arms race, trailing behind Nvidia, but it still shows potential for investment despite its current market status [2][4]. Business Segments - AMD's business is divided into three main segments: Data Center, Client and Gaming, and Embedded, with the Data Center segment performing the best [5][6]. - The Data Center segment generated $3.7 billion in Q1 with a year-over-year revenue growth of 57% and an operating margin of 25% [6]. - The Client and Gaming segment brought in $2.9 billion with a 28% year-over-year growth and a 17% operating margin [6]. - The Embedded segment, acquired through the purchase of Xilinx, generated $0.8 billion but experienced a decline of 3% in revenue with a high operating margin of 40% [6]. Revenue Growth and Projections - AMD's overall revenue increased by 36% year-over-year, but future growth is projected to slow down to 27% in Q2 and 23% for 2025 [6][7]. - Projections for 2026 indicate a continued decline in revenue growth to 17% [7]. Margin Improvement - AMD's margins have been under pressure but are showing signs of improvement, which is crucial for its investment potential [8][10]. - Analysts expect earnings per share (EPS) to rise to $5.71 by 2026, up from $1.38 over the past 12 months, indicating strong earnings growth [10][13]. Valuation Metrics - Currently, AMD trades at approximately 28 times forward earnings, which is considered expensive [11]. - When evaluated based on projected FY 2026 earnings, AMD trades at 19.3 times forward earnings, suggesting a more favorable valuation if margin expansion is achieved [13].