Developing artificial intelligence (AI) software relies heavily on substantial computing power, with much of the work occurring inside expansive data centers equipped with thousands of specialized chips known as graphics processing units (GPUs). Currently, Nvidia dominates the data center GPU market, but Advanced Micro Devices (NASDAQ: AMD) is rapidly closing the gap.
In its recently released operating results for the first quarter of 2026, AMD reported significant revenue growth, primarily from its data center segment. The company is set to begin shipping its latest MI450 chip later this year, anticipated to become its most successful AI product to date. The meteoric rise of AMD’s stock—surging by 320% over the past year—raises questions about whether the current value of its data center business is accurately reflected, or if there remains potential for further growth.
With a keen focus on the upcoming MI450 and its associated infrastructure, AMD has steadily expanded its offering since launching its first AI-specific data center GPU, the MI300X, in 2023. This initial foray drew in major clients from Nvidia’s customer base, including Meta Platforms, Microsoft, and Oracle. Following this success, AMD has debuted several more high-performance GPUs, such as the MI355X and MI440X.
The company plans to roll out the MI450 series of AI accelerators by year’s end, designed for customization to meet specific needs of data center operators. Accompanying these chips will be the Helios data center rack, which integrates specialized software and networking hardware to maximize performance. AMD claims that this new setup will offer an impressive 36 times higher performance compared to the previous GPU generation, positioning the company closer to Nvidia’s stronghold in the data center market.
Additionally, AMD has secured substantial partnerships for the MI450, with Meta Platforms and OpenAI committing to deploy significant computing capacity under these agreements. CEO Lisa Su has indicated a surge in demand, noting that interest from new customers for large-scale deployments is on the rise.
AMD’s financial performance reflects this momentum, generating $10.3 billion in revenue during the first quarter, representing a 38% increase year-over-year. Notably, the data center business alone contributed $5.8 billion in revenue, marking a robust 57% growth—an acceleration compared to earlier quarters, underscoring the thriving market for AI chip sales.
Looking ahead, Su forecasts that as MI450 shipments increase into 2027, AMD’s data center revenue will grow at an impressive compound annual growth rate of at least 80%. This trajectory could translate to tens of billions of dollars in annual revenue from this sector alone. Demand remains high, with suppliers struggling to keep pace with the need for data center GPUs and accelerators, allowing AMD to command strong pricing power, further enhancing profit margins.
However, despite its achievements, AMD’s stock valuation raises eyebrows. Trading at a price-to-earnings (P/E) ratio of 92 based on trailing earnings of $4.58 per share, it is almost double that of Nvidia’s ratio of 43.5. This elevated valuation is challenging to justify, especially given that Nvidia continues to lead the market and has demonstrated faster growth in its data center revenue, which jumped by 75% in its most recent quarter.
Wall Street analysts project AMD’s earnings to reach $11.22 per share by 2027, suggesting a forward P/E ratio of 37.5. Should these predictions hold, there may indeed be room for stock appreciation over the next year and a half. If AMD’s data center sector performs as Su anticipates, it could result in a more favorable stock valuation as future earnings for 2028 and 2029 come into focus.
For potential investors considering whether to buy AMD stock at this juncture, it’s worth noting that recent analyses highlight it as a risky investment. A notable investment service recently published a list of ten stocks viewed as strong buy candidates—AMD did not make the cut. Comparisons with past recommendations from this service illustrate substantial gains for earlier investments, emphasizing the performance potential of selected stocks.
In summary, while AMD’s stock appears expensive at present, the company’s trajectory in the data center market and increasing demand could offer promising returns for long-term investors willing to navigate its current valuation.
