Advanced Micro Devices (AMD 0.79%) stock has surged impressively over the past three months, but its rally hit a rough patch after the chip designer released its second-quarter 2025 results on Aug. 5. Shares of AMD fell by more than 6% in the session that followed, even though the company reported a terrific increase in revenue.
Even its guidance was better than analysts were expecting. Investors, however, appeared to be more concerned about the performance of AMD's data center business, where slower-than-expected growth led investors to hit the panic button.
However, a closer look at AMD's financial results and guidance reveals that the company has a solid artificial intelligence (AI)-fueled catalyst beyond the data center business that should help it sustain its impressive performance for years to come.
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AI-powered personal computers (PCs) are driving solid growth for AMD
AMD's quarterly revenue increased by an impressive 32% year over year in Q2 to $7.7 billion. The company's client PC processor and gaming segment played a key role in driving this solid growth: Revenue from the segment jumped by 69% to $3.6 billion.
NASDAQ: AMD
Key Data Points
AMD says that it witnessed record revenue from sales of its desktop and notebook processors last quarter, while sales of its client graphics processing units (GPUs) improved as well. Its Ryzen 9000 series processors are in hot demand, and that's not surprising considering the in-built AI processing capabilities that they pack.
AMD says that its latest processors are powerful enough to run applications such as generative AI assistants, accelerate content creation with the help of AI tools, and enhance productivity by running applications such as Copilot seamlessly. The company's focus on churning AI-capable PC processors is clearly paying off, and that should remain a long-term tailwind for AMD.
That's because shipments of AI-enabled PCs are projected to increase at a compound annual rate of 42% through 2028, according to market research firm IDC. Based on that, IDC expects that by 2028, PCs equipped with a neural processing unit (NPU) to tackle AI workloads will account for almost 95% of the overall market.
AMD is already capitalizing on this trend by integrating NPUs into its client processors. On the other hand, the company's client graphics card business also has a secular growth opportunity. By 2028, annual shipments of GPUs capable of supporting AI workloads are expected to be almost 60% higher than 2023 levels. AMD has already launched client graphics cards that accelerate AI workloads locally on PCs.
In all, the company's client segment seems well-placed to keep growing at healthy rates for years to come. Importantly, this segment's growth should be complemented by the ongoing expansion of the data center GPU market.
The data center business seems primed for stronger growth
There's no question that AMD's data center revenue growth of 14% year over year in Q2 wasn't all that great. After all, Nvidia reported 73% year-over-year growth in this segment to $39.1 billion last quarter. AMD's revenue was way lower at $3.2 billion.
However, AMD had to write down $800 million worth of its data center GPU inventory last quarter because of federal restrictions on the export of its chips to China. This headwind tempered AMD's data center growth, offsetting the solid demand for its Epyc server processors, which are increasingly being adopted by cloud computing giants such as Oracle and Google.
Investors, however, will do well to note that AMD's data center revenue could clock a faster growth rate from here, as it expects to resume shipments to China following recent developments in Washington. The company will have to pay the U.S. government 15% of its revenue from AI chip sales to China, but that's better than being completely locked out of the Chinese market.
The good part is that the company is expecting shipments to non-Chinese customers to increase as well in the second half with help from its MI350 AI accelerators. These chips are on track for a "steep production ramp in the second half of the year to support large-scale production deployments with multiple customers," said CEO Lisa Su on the Q2 earnings call.
AMD is forecasting a 28% year-over-year increase in revenue in the current quarter, and that excludes any potential revenue from China. It could end up delivering stronger growth than that, thanks to the opportunity in AI-powered PCs as well as the ramp-up of its data center GPU sales in the second half.
That's why investors should consider buying AMD, as it is now trading at 9.5 times sales, which is almost in line with the U.S. technology sector's average price-to-sales ratio. The AI stock's ability to grow revenues at a faster pace in the second half of the year could lead the market to reward it with a higher multiple, and that could pave the way to more share price upside.
