AMD (AMD) will report its second-quarter earnings on Tuesday, Aug. 4. The stock has fallen more than 22% from its recent high as investors locked in profits after a strong rally, while broader weakness in AI-related stocks has added to the selling pressure.
Despite the recent pullback, AMD's fundamentals remain solid. Robust demand for AI accelerators and high-performance CPUs, along with a rapidly expanding addressable market, positions the company to deliver solid financial results.
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With AMD trading well below its recent peak, here are two reasons why investors could consider buying AMD stock before earnings.
www.barchart.com Reason #1: AMD's Earnings Growth Story Is Just Getting Started
AMD is well-positioned to deliver solid earnings growth through the end of this decade, which will likely drive its share price higher. Robust demand for its server processors and AI accelerators is expected to drive significant earnings growth over the coming years.
Notably, AMD delivered revenue of $10.3 billion, representing a 38% year-over-year (YoY) increase. Earnings also grew by more than 40%, while free cash flow surged to $2.6 billion, more than three times the level reported a year earlier.
Q2 will likely show accelerating growth, as rising enterprise and hyperscale investment in AI infrastructure drives demand for its products and market share gains.
As for Q2, AMD expects revenue to be $11.2 billion, reflecting solid sequential and YoY growth of about 46%. Data center revenue is projected to deliver sequential double-digit growth, driven by both the server CPU business and AI accelerators. Server CPU revenue is expected to increase by more than 70% YoY during the quarter, with similar strength anticipated through the second half of the year.
Meanwhile, AMD plans to begin initial shipments of its Helios platform in the third quarter, followed by a meaningful production ramp in the fourth quarter, expected to continue into 2027.
Thanks to solid top-line momentum and margin expansion, analysts expect AMD to report second-quarter earnings of $1.35 per share, a substantial increase from $0.48 per share in the corresponding quarter last year.
AMD’s long-term growth prospect remains compelling as its addressable market continues to expand. Over the next three to five years, management is targeting revenue growth at a compound annual rate exceeding 35% and adjusted EPS of more than $20. Achieving that earnings target would represent a significant increase from the consensus expectation of approximately $6.27 per share in 2026.
The company also expects its data center business to remain the primary growth engine, projecting revenue from the segment to compound at more than 60% annually, supported by its competitive portfolio of server CPUs and AI accelerators.
In short, AMD's accelerating revenue growth and expanding profitability could continue to push its stock price higher.
Reason #2: AMD's Valuation Still Leaves Room for Upside
Despite its impressive rally, AMD stock doesn't appear overly expensive when viewed alongside its earnings growth potential. AMD trades at a price-to-earnings (P/E) ratio of about 80. While that may seem elevated at first glance, Wall Street expects AMD's EPS to surge by 91.7% in 2026 and another 88.6% in 2027. Further, it is expected to hit $20 over the next three to five years.
Those growth projections are supported by the company's strong revenue prospects as demand for its AI and data center chips continues to expand. With consistently delivering solid growth, its valuation appears reasonable, leaving the stock with meaningful upside potential for long-term investors.
Final Takeaway
AMD stock's recent pullback has created an attractive entry point for investors. Strong AI-driven demand, accelerating earnings growth, and an expanding data center business support a favorable long-term outlook. Despite its strong growth prospects, AMD's valuation remains relatively attractive compared with its expected earnings trajectory.
Wall Street continues to maintain a “Strong Buy” consensus on the stock, reflecting confidence in AMD's long-term growth story.
www.barchart.com On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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