One beneficiary of the rapid adoption of artificial intelligence (AI) over the past year or so has been Advanced Micro Devices (AMD 1.78%). The chipmaker has been working to capture a portion of the AI chip market, unveiling its long-awaited MI300X processor late last year.

Despite AMD gaining 84% over the past year, one Wall Street analyst thinks there's additional upside ahead.

Strong demand and a conservative forecast

Analysts at Baird just reiterated an outperform (buy) rating on AMD shares while maintaining a $200 price target. That suggests a potential upside for investors of 17% compared to Friday's closing price. The analysts acknowledge reports that a cloud infrastructure operator has cut its order for AMD's MI300X data center chips but suggest it may have purposefully over-ordered.

As evidence, the analysts point out that Nvidia experienced similar order cuts late last year, as demand far outstripped supply, and customers scaled back orders "more in line with shipment expectations." Baird also suggests there's a "comfortable upside" to AMD's revenue guidance for the year.

It's hard to find fault with the analysts' take. Over the past few quarters, demand for generative AI has accelerated, with businesses scrambling to adopt these productivity-enhancing algorithms. It's still early days for AI and Wall Street continues to ramp up expectations regarding the overall size of the market. Furthermore, this is essentially a two-horse race. AMD chips are a viable and less costly alternative to Nvidia's AI processors, which have been in short supply.

It seems likely management is being conservative with its guidance, forecasting revenue of $5.4 billion for the first quarter -- which would be flat year over year. This may be overly pessimistic, particularly during a period of accelerating demand for AI. Additionally, AMD delivered both sequential and year-over-year growth in the fourth quarter, which gave the company momentum heading into the first quarter.

Finally, AMD sports a price/earnings-to-growth (PEG) ratio of less than 1, the standard for an undervalued growth stock.