Advanced Micro Devices (AMD -5.44%) shares were on fire in 2020 and 2021. An investment of $10,000 made in AMD stock on Jan. 1, 2020, would have grown in value to $31,380 by Jan. 1, 2022. The red-hot PC market (driven in part by the COVID-19 pandemic) pushed AMD's annual revenues from $6.7 billion to $16.4 billion in only 24 months.

Then came 2022. AMD shares are down 49% year to date as the PC market cooled. So, is AMD getting ready for another surge, or are its best days behind it? Let's take a closer look and see what the market might be missing when it comes to this semiconductor powerhouse.

Silicone wafer with circuits.

Image source: Getty Images.

AMD's four revenue streams are its hidden strength

When analyzing a stock, it's important to understand how the company generates revenue. For some companies, this is straightforward, with most -- or even all -- revenue coming from a single source. However, other companies operate across multiple segments or divisions, leaving investors to sort through which segments are driving revenue and growth.

AMD has four segments: 

  1. Client (PCs)
  2. Data Center (cloud and servers)
  3. Gaming (consoles)
  4. Embedded (custom, defense, and industrial)
A chart from Advanced Micro Devices shows AMD revenue broken down by segment for the third quarter of 2022

Source: AMD Investor Relations.

The data center and gaming segments led the way for AMD, with each generating $1.6 billion in revenue. The embedded segment was third with $1.3 billion, and the client segment was last with $1 billion.

These figures represent a change for AMD. As recently as 2020, sales of PC chips accounted for two-thirds of its revenue. Now, its client segment makes up only 18%. That's partly to do with the weak PC market (PC sales have declined by a double-digit percentage in 2022), but it's also because of AMD's strategy.

Embedded could be the future for AMD

The PC market is notoriously cyclical. Boom years are often followed by bust years, so AMD's decision to diversify its revenue stream is a smart long-term move. More than 80% of the company's revenue now comes from outside the PC space. What's more, much of that revenue is coming from secular trends that show no signs of stopping. 

Take the embedded segment, for example. In February 2022, AMD acquired Xilinx for $49 billion. AMD's embedded segment is composed almost entirely of Xilinx's former book of work. Although it was a costly acquisition, AMD is betting on the growth of that business as the use of embedded semiconductors is rapidly growing. 

If you've recently gone car shopping, it's easy to see how machines that used to have few or no computer chips are now saturated with them. Heads-up displays, touchscreen monitors, collision monitoring, and adaptive cruise control are just some of the now-ubiquitous automotive features that require powerful, reliable chips. 

What's more, this trend extends way beyond the automotive industry. Aerospace, defense, and industrial companies are all clamoring for custom-designed embedded chips to include in their products. And AMD will be there to meet the demand.

Is AMD a buy now?

AMD's four-segment model is a revenue-generating strength. Because each segment's business is mostly uncorrelated to the others, AMD is well-positioned to thrive even when there's weakness in one or more of its markets. Furthermore, its data center and embedded segments are riding secular tailwinds generated by the growth of cloud computing and embedded chip technology.

So, with great long-term prospects and a great leadership team, AMD looks like a buy to me.