The AI rally seems to be making a comeback, and that’s despite the stock market seeing significant volatility in recent months. Tariff pauses and trade deals were enough to cause an increase in optimism and push the broader market to a positive year-to-date, and chip stocks have regained momentum.
But as Nvidia (NASDAQ:NVDA), Palantir (NASDAQ:PLTR), and others are nearing their all-time highs, AMD (NASDAQ:AMD) has a long way to go. That said, it is up over 30% in the past month, but the stock could deliver 80% more upside if it recovers all the way.
The recent gain has been the first such rally since September 2024. Is this a sign of a cyclical bottom here? Let’s take a look.
AMD Ends Its Streak of Underperformance
Unlike most other chip stocks in the market, things haven’t been very rosy for AMD, mainly because of AMD missing analyst estimates quarter after quarter. But Q1 has been surprisingly strong. Revenue at $7.4 billion surpassed the $7.11 billion forecast and grew 36% year-over-year. EPS also came in a cent above estimates at $0.96. This is the fourth consecutive quarter of accelerating year-over-year growth, and this time, AMD wasn’t held back by any specific segment.
All key segments saw solid growth as Data Center revenue surged 57% year-over-year to $3.7 billion and Client revenue jumped 68% year-over-year to $2.3 billion. AMD also projects Q2 2025 revenue of approximately $7.4 billion, which is above analyst expectations of $7.25 billion. That’s 27% year-over-year growth despite an estimated $700 million impact from new export license requirements.
Has AMD Stock Reached a Cyclical Bottom?
The downturn in the past year was not due to AMD’s financials seeing a decline. It was quite the opposite. The financials are only getting better since the start of 2024, and while they haven’t all been in line with analyst estimates, they were still stellar.
AMD’s decline is mostly to blame on the higher expectations investors had. Nvidia is AMD’s main competition, and that company has better fundamentals and products. Most of the AI chip investments have been flowing there. AMD’s numbers still look weak when you compare them to those of Nvidia.
Regardless, AMD’s financials bottomed out a long time back and have been on a path to recovery. It is just starting to translate into the stock.
Should You Buy AMD Stock Now?
AMD stock has been a buy in my book since it went below $100. Even though it is above that level now, I still think it is a buy due to the improving fundamentals. The long-term trend looks solid, especially for its AI chips that are great for inference.
However, you should only buy AMD stock as a diversification play after building up a big enough position in NVDA stock first. Nvidia has performed much better, has better products, fundamentals, and currently offers better value at 31 times forward earnings vs. AMD’s 29 times forward earnings.
