Is AMD’s Surge Justified After AI Chip Momentum in 2025?

If you have ever wondered about what to do with your shares of Advanced Micro Devices, you are definitely not alone. Over the past several years, AMD's stock chart has resembled a rocket trajectory rather than a steady climb, dazzling investors with its ability to shake off short-term volatility and leap higher when opportunities arise. In just the past three years, the stock is up close to 84%. If you zoom out five years, that return is nearly 96%. Even within the past ninety days, shares have surged more than 52%, which is a reminder of how quickly sentiment and prospects for semiconductor companies can shift in today's fast-moving tech landscape.

Recently, however, the gains have been punctuated by pockets of uncertainty as investors weigh rapidly evolving market conditions and AMD's positioning against competitors. The stock edged up about 2.5% in the last day and 5.7% over the past month, although it dipped slightly over the last week. Still, these swings have not stopped analysts from increasing price targets, with the most recent consensus figure sitting about 10% above where shares last closed. Beneath these numbers is a business demonstrating solid fundamental progress. Annual revenue growth at over 15% and net income growth above 30% indicate operational momentum.

But what does all this mean for valuation? Based on a commonly used scoring system, where a company scores 1 point for each of six ways it is considered undervalued, AMD receives a value score of 0. In other words, the company is not undervalued on any of the six checks that will be discussed. Now, let's dive into exactly what goes into those valuation approaches and why simply following the scores might be missing an even bigger picture, which will be addressed at the end of the article.

Advanced Micro Devices delivered 8.2% returns over the last year. See how this stacks up to the rest of the Semiconductor industry.

Approach 1: Advanced Micro Devices Cash Flows

A Discounted Cash Flow (DCF) model estimates what a company is worth today by projecting its future cash flows and discounting them back to their present value. This method boils down all of AMD's expected future financial performance into a single intrinsic value number that investors can use for comparison with today's market price.

Currently, Advanced Micro Devices generates $4.1 billion in free cash flow annually. Looking ahead, analysts project that the company could reach free cash flow of over $16.3 billion by 2029, with intermediate projections indicating a persistent upward trend over the next decade.

Based on these forward-looking projections, the DCF model arrives at an intrinsic fair value per share of $138.05. However, when compared to AMD's current share price, this estimate suggests the stock is actually 21.5% overvalued at present. A negative discount in this comparison means overvaluation rather than undervaluation.

For investors, this implies that despite impressive growth prospects in cash generation, AMD’s current price already reflects a significant amount of optimism.

Result: OVERVALUED

Our DCF analysis suggests Advanced Micro Devices may be overvalued by 21.5%. Find undervalued stocks based on DCF analysis or create your own screener to find better value opportunities.

Approach 2: Advanced Micro Devices Price vs Earnings

For companies that are consistently profitable and generating strong earnings, the Price-to-Earnings (PE) ratio is often the most useful valuation multiple. The PE ratio helps investors understand how much they are paying for each dollar of earnings today. Higher ratios generally imply higher investor expectations for future growth or lower perceived risk.

The definition of a “normal” or “fair” PE ratio depends on a combination of company-specific growth prospects, overall profit stability, business risks, and industry trends. Higher-than-average growth rates can justify a premium. However, excessive optimism may result in overvaluation if these growth rates fail to materialize.

Currently, AMD trades at a PE ratio of 99.7x, which is closely watched given the company’s rapid growth. For context, the average PE ratio across the semiconductor industry is 30.1x, while the average among AMD’s peers is 34.1x. Simply Wall St’s proprietary Fair Ratio model, which accounts for AMD’s earnings growth, profit margin, market cap, and sector risk, calculates a fair PE of 52.4x.

When comparing AMD’s actual PE to its Fair Ratio, the stock is trading at a significant premium. This reflects high expectations that may be challenging to sustain if growth slows down. Investors should be mindful that much of the anticipated upside appears priced in at these levels.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Advanced Micro Devices Narrative

Rather than relying solely on static valuation models or a single fair value number, Narratives offer a smarter, story-driven approach to investing. A Narrative is a way to connect the company's unique story with your expectations about its future revenue, earnings, and margins, and then link these elements to a financial forecast. This process helps you arrive at your own estimated fair value for the stock.

This approach makes investing more personal and dynamic. Narratives are easy to create and compare within the Simply Wall St platform, where millions of investors share differing viewpoints. By comparing your Narrative’s fair value to the current market price, you can decide whether it’s time to buy, hold, or sell based on your perspective rather than relying only on consensus opinions.

Narratives are also updated automatically as new information, such as earnings releases or industry news, becomes available. This allows you to adjust your outlook as market conditions evolve.

For example, some investors see AMD’s fair value as high as $230 by projecting strong AI-powered growth and margin gains in the coming years. Others see fair value closer to $103, reflecting concerns about fierce competition and global supply chain risks.

For Advanced Micro Devices, we will make it really easy for you with previews of two leading Advanced Micro Devices Narratives: 🐂 Advanced Micro Devices Bull Case Fair value: $180.10 Currently trading at 7% below narrative fair value Revenue growth: 16.5% - AMD’s hardware efficiency and aggressive pricing strategies are expected to drive further gains in desktop CPU and low-to-mid range GPU market share. - The Xilinx acquisition positions AMD to compete in the Data Center space and expand into AI-driven markets, leveraging adaptive computing. - Continued emphasis on open, cost-effective solutions in gaming and new industry partnerships should spur multi-segment revenue growth. 🐻 Advanced Micro Devices Bear Case Fair value: $103.16 Currently trading at 63% above narrative fair value Revenue growth: 16% - Revenue growth is expected to be strong in the near term, then slow, as cyclical chip demand and AI investment plateaus. - Rising competition with Nvidia and Intel will require sustained high R&D spending, putting downward pressure on AMD’s profit margins. - AMD’s share price could fall back to lower valuation multiples as growth slows and margins remain constrained. Do you think there's more to the story for Advanced Micro Devices? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com