Wednesday's market downturn saw this artificial intelligence-focused stock plummet to a fresh low. Could this be an opportune moment for purchases?
The Federal Reserve potentially dampened this year's market surge on Wednesday, suggesting a deceleration in its rate reduction pace. Despite this, the major market indices still yielded positive results for most investors. A mere third of the market's large-cap stocks are enduring losses in 2025.
Fewer than 6% -- that's 50 out of 853 stocks with a market cap exceeding $10 billion listed on U.S. exchanges -- reached new 52-week lows during Wednesday's downturn. One of the more captivating stocks on that list is Advanced Micro Devices (AMD 1.23%). This semiconductor titan offers investors an uncommon opportunity in the realm of artificial intelligence (AI) and has failed to keep pace with tech stocks in 2025.
I'll delve into why AMD hitting its lowest share price in more than a year should be considered a dinner bell rather than a warning bell.
A chip off the old block
Just being in the right place at the right time isn't always enough for a company to reap the benefits of a popular trend. AMD is experiencing a surge in demand for its AI processors, but other aspects of its operations are showing signs of reversal.
Revenue for its data center segment surged by 122% in its recent quarter. While AMD may not be the first company investors think of when considering the pick-and-shovel plays of the AI revolution, high demand is boosting all chip manufacturers. The ever-growing demand for powerful and energy-efficient processors is essential for resource-intensive tasks like AI video editing, image generation, content creation, and graphics performance. Additionally, these processors must be battery-friendly for portable PCs used for AI work.
While AMD may have been behind the curve in recognizing the AI trend, its recent success is positively impacting its overall performance. The $3.5 billion in data center revenue it recorded in the third quarter represents more than half of its total revenue of $6.8 billion. However, some of its former revenue drivers seem stuck in a rut.
Its gaming segment has seen its business decline by 69% over the past year, mainly due to a decrease in its semi-custom revenue. AMD's larger embedded segment business has experienced a 25% year-over-year decline in revenue. One segment that's thriving outside of its data center growth is its client segment, which posted a 29% increase in revenue in its last quarter.
The combined result of all these factors is a modest 18% increase in revenue for AMD in its third quarter. Although it's not comparable to the top-line growth reported by more obvious AI plays, it's not an indication of AMD's irrelevance. For instance, industry leader and market favorite Nvidia reported a 94% increase in revenue in its latest fiscal quarter. Despite AMD's struggles this year -- with its shares down 18% in an otherwise bullish 2025 -- it's still making significant strides.
The case for a rebound in 2026
As poorly as AMD has performed this year -- with its shares trading 18% lower in a generally upbeat 2025 -- the out-of-favor semiconductor giant is still exhibiting several positive signs. It has consistently surpassed analyst earnings expectations in all three quarters of this fiscal year. Its margins are expanding, and adjusted net income grew by 31% in its latest report.
AMD's 18% increase in revenue is its strongest year-over-year gain in two years, and it's gaining momentum. Its own forecast calls for revenue to grow by 22% for the current quarter. Analysts predict revenue to increase by 27% for the entirety of next year. The bottom line is expected to grow even more rapidly.
At a forward P/E ratio of 24, AMD is not cheap, but it's a reasonable price for an authentic AI play that's making its comeback. If AMD isn't on your radar, it might be worth considering its compelling entry price at this point.
In the context of investing in 2025, despite the Federal Reserve's potential deceleration in rate reduction pace affecting some stocks, AMD, a significant player in the semiconductor industry and AI sector, continues to offer a unique opportunity for investors due to its high demand for AI processors.
Managing one's finance wisely could include considering investments in companies like AMD, as the demand for powerful and energy-efficient processors for AI applications is on the rise, and AMD's data center segment revenue surge by 122% in its recent quarter reflects this trend.
