Advanced Micro Devices (AMD), popularly known as AMD, has lived in the shadows of Nvidia (NVDA) in the artificial intelligence (AI) race. However, being a prominent player in a market projected to reach a staggering $2.1 trillion is not really a bad place to be.

Yet, Bank of America has concerns about AMD stock. Citing competitive pressure and a slowdown in the PC processor market as signs of trouble for the chipmaker, analysts have downgraded the stock to “Neutral” from “Buy” while lowering their price target to $155 from $180.

So, as investors, is AMD a stock to avoid? The overall Wall Street analyst community does not think so. 

About AMD Stock 

Founded in 1969 and headquartered in Santa Clara, California, AMD is a behemoth of the semiconductor industry, commanding a market capitalization of $192 billion. The company is one of the world's largest suppliers of microprocessors and related technologies for the computing and graphics industries. AMD's products are used in a wide range of applications, including personal computers, servers, workstations, embedded systems, and gaming consoles. 

However, AMD has had a disappointing 2024 in terms of stock performance, falling 17.8% on a year-to-date basis.

Yet, this should not deter prospective investors from buying the stock.

AMD Has Strong Financials

AMD has seen impressive growth in revenue and earnings in the last decade. Over the past 10 years, AMD's revenue and earnings have clocked compound annual growth rates (CAGRs) of 15% and 43%, respectively.

This streak continued in the most recent quarter with AMD reporting an increase in both the top line and the bottom line. The company reported revenue of $6.8 billion, which marked yearly growth of 18%, while adjusted earnings went up by an even sharper 31% in the same period to $0.92 per share.

A key contributor to the overall growth in revenue was the rise in revenues from the Data Center segment to $3.5 billion (+122% YOY) and Client segment revenues to $1.9 billion (+29% YOY).

With increasing sales, AMD also saw an improvement in its gross margins to 54% (vs. 51% in Q3 2023) which is a testament to its competitive strength.

Meanwhile, cash flows remained solid as well with the company reporting net cash from operating activities of $628 million in the quarter compared to $421 million in the year-ago quarter. Overall, the company closed the quarter with a cash balance of $4.5 billion with no short-term debt on its books.

Strategic and Operational Strength

AMD's strategic initiatives and strong fundamentals position the company to challenge Nvidia and expand its market share in the competitive semiconductor industry. A key development is the launch of its Instinct MI325X AI chip and Ryzen AI PRO 300 Series processors. The MI325X targets the growing data center GPU market, which is projected to reach $500 billion by 2028, while the Ryzen AI PRO 300 Series focuses on the PC market. These product launches underscore AMD’s intent to capitalize on emerging AI opportunities.

AMD’s aggressive roadmap for AI accelerators further strengthens its market positioning. The company plans to release the MI325X in 2024, followed by the MI350 series in 2025 and the MI400 series in 2026, all based on its next-generation CDNA architecture. Supply shortages and production delays of Nvidia’s Blackwell GPUs provide AMD with an opening to capture market share, particularly in the high-demand AI accelerator segment. Major cloud providers such as Microsoft (MSFT) and Google (GOOG) have already adopted AMD’s 4th-generation EPYC CPUs, further solidifying its foothold in the data center market.

AMD’s acquisition of Silo AI is another strategic move that enhances its capabilities in large language model training while creating a new revenue stream in AI solutions. Silo AI’s existing customer relationships, including with Nvidia, add strategic value to this acquisition. On the software front, AMD’s ROCm open-source platform has emerged as a strong pillar for its AI ecosystem. ROCm version 6.2 delivers substantial performance gains, achieving 2.4x improvements in AI inferencing and 1.8x in training compared to earlier versions. Its compatibility with widely-used AI frameworks such as PyTorch and TensorFlow makes AMD solutions more accessible and appealing to customers.

These advancements, combined with its expanding presence in AI, data centers, and gaming, highlight AMD's ability to drive growth and compete effectively in the semiconductor industry.

What's the Analyst Forecast for AMD Stock?

Given the company's rapidly expanding AI credentials and diversified semiconductor portfolio, it's no surprise that analysts have deemed AMD stock a “Strong Buy,” with a mean target price of $187.56. This indicates expected upside potential of about 55% from current levels. 

Out of 38 analysts covering the stock, 30 have a “Strong Buy” rating, 1 has a “Moderate Buy,” and 7 have a “Hold” rating.