AMD Rides on Growing Data Center Footprint: Buy or Hold the Stock?

Core Insights - Advanced Micro Devices (AMD) anticipates the data center total addressable market (TAM) to reach $1 trillion by 2030, indicating a compound annual growth rate (CAGR) of over 40% from approximately $200 billion estimated in 2025 [1] - AMD expects its data center AI revenues to grow at a CAGR of more than 80% over the next 3-5 years, driven by strong demand for Instinct GPUs and an expanding clientele [1] - Overall data center business revenues are projected to see a CAGR of more than 60%, while total revenues are expected to grow at greater than 35% during the same period [1] Stock Performance - AMD shares surged 18.7% in the past month, outperforming the Zacks Computer and Technology sector and competitors like NVIDIA, Broadcom, and Intel [3] - Over the trailing 12-month period, Broadcom shares returned 108.5%, while AMD appreciated 86.4% [3] Demand Drivers - Strong demand for EPYC processors is fueling AMD's growth, particularly in cloud and enterprise workloads [4] - The rapid adoption of AI technologies is generating increased demand for general-purpose compute infrastructure, benefiting EPYC sales [4] - In Q3 2025, hyperscalers launched over 160 EPYC-powered instances, with more than 1,350 public EPYC cloud instances available globally, marking a 50% year-over-year increase [10] Product Portfolio and Partnerships - AMD's strong product portfolio includes fifth-generation EPYC processors and Instinct MI350 series GPUs, which are driving top-line growth [10] - The company has introduced its Helios design and ROCm 7 software, enhancing AI training and inference performance [11] - An expanding partner base, including major companies like OpenAI, HPE, and Amazon Web Services, is contributing to AMD's growth prospects [12] Financial Guidance - AMD expects Q4 2025 revenues of $9.6 billion (+/-$300 million), representing approximately 25% year-over-year growth [13] - The Zacks Consensus Estimate for Q4 2025 revenues is pegged at $9.65 billion, indicating a 25.97% increase from the previous year [14] Valuation Concerns - AMD's stock is currently considered overvalued, with a forward 12-month price/sales ratio of 10.22X compared to the sector's 6.88X [15] - The company's stretched valuation is a concern for investors [18]