Investors tend to gravitate to growth stocks they perceive as smart. Indeed, the idea of a smart stock can depend heavily on one's point of view.
Still, most would agree that buying a wonderful company at a fair price, as Warren Buffett advises, would qualify a stock as such a pick. This may be especially true of an investor who has $5,000 to put in a growth stock, as even that relatively modest sum could grow significantly in size with the right investment.
One stock that arguably fits those criteria is Advanced Micro Devices (AMD +0.64%). Since Lisa Su took over as CEO in 2014, the company has recovered from the brink of bankruptcy and become a top semiconductor stock. Amid the artificial intelligence (AI) revolution and the soaring demand for chips, the company and its shareholders should prosper; here's why.
Image source: Getty Images.
Understanding AMD
AMD has evolved since its founding in 1969, but Su turned it into a company focused primarily on CPUs and GPUs. To that end, AMD is now four chip-related enterprises under one umbrella.
The largest segment is its data center business, which accounted for half of the company's revenue in the first quarter of 2025. It designs CPUs and GPUs to handle workloads and create its AI accelerators, which help power workloads in that fast-growing segment. That led to a 57% year-over-year revenue growth rate in Q1.
Approximately 30% of the company's revenue comes from the client segment. It designs chips for desktops, laptops, and handheld computers. In Q1, revenue rose 68% annually as customers took to its Zen 5 Ryzen processors and other offerings.
Its embedded segment generates about 11% of the company's revenue. It designs chips that perform specific functions within larger systems.
The remaining 9% of AMD's revenue is from its gaming segment. It makes CPUs and GPUs designed for gaming purposes, and its chips power Sony's PlayStation and the Microsoft Xbox.
The company has benefited from rapid growth in the data center and client businesses amid soaring demand for such chips. That is how they became more than 80% of AMD's revenue.
Unfortunately, the stock suffered as its embedded and gaming businesses languished in down cycles. Fortunately, embedded revenue declined by only 3% in Q1 as some signs of rising demand have finally emerged.
Gaming suffered as previously locked-down gamers resumed offline activities. Also, Sony and Microsoft have not updated their consoles in a few years, leaving consumers with fewer reasons to buy. Nonetheless, gaming's 30% revenue drop in Q1 is less severe than in previous years, a sign that its decline may finally come to an end soon.
AMD's improving financials
Thanks to signs of improvement from its lagging sectors, AMD's revenue growth is on the rise. In the first quarter of 2025, revenue of $7.4 billion grew 36% year over year. In comparison, revenue growth in Q1 2024 was only 2%, showing a vast improvement over just one year.
Moreover, costs and expenses grew at a slower pace than revenue. Consequently, AMD's quarterly net income of $709 million was far above the $123 million it earned in the year-ago quarter.
Indeed, looking forward to Q2, AMD may not quite match its Q1 revenue growth rate. The company forecasts Q2 revenue to be between $7.1 billion and $7.7 billion. That would amount to 27% year-over-year revenue growth at the midpoint.
However, the increased likelihood that the stock has bottomed should bode well for investors who buy now. AMD is down by approximately 50% from its all-time high in early 2024 but has surged 50% since bottoming in early April.
NASDAQ: AMD
Key Data Points
And despite that considerable short-term gain, its valuation remains attractive. AMD sells at a P/E ratio of 85 thanks to lower earnings in past quarters. Still, with its earnings recovery more recently, its forward P/E ratio is 29. Considering its rapid revenue and earnings growth, investors may view that valuation as a bargain.
Buy AMD stock
Ultimately, AMD's business and its burgeoning recovery appear to make it the smartest growth stock to buy at this time.
For one, the 50% discount from the all-time high and the low forward P/E ratio make the stock attractively priced for buyers.
Aside from those attributes, the bad news seems to be abating. The data center and client segments have benefited from strong growth. Additionally, the embedded segment appears poised to return to a growth mode, and despite the significant declines in the gaming segments, conditions may finally be on track to get better.
Thanks to such improvements, AMD's overall revenue growth rate has increased. As that rising revenue leads to accelerating profit levels, investing $5,000 in AMD stock looks more like an intelligent decision.
