If you want an early exit to retirement, you don't have to be aggressive with your investments, chasing high-risk, unprofitable companies. You can earn substantial returns among technology leaders, and I believe one of the best artificial intelligence (AI) stocks to bet on right now is Advanced Micro Devices (AMD 1.09%).
AMD's revenue growth is accelerating ahead of promising new chip launches next year. The good news for investors is that the shares remain significantly undervalued compared to forward growth estimates among Wall Street analysts.
Image source: Getty Images.
AMD has what it takes to sustain high growth
AMD's revenue surged 36% year over year in the third quarter, driven by strong demand for data center chips. Demand for its fifth-generation Epyc processors and Instinct MI350 AI graphics processing units (GPUs) was the key driver of growth.
Analyst estimates expect its revenue to grow at an annualized rate of 30% through 2029, reaching $96 billion. This is primarily due to increased visibility of demand for AMD's data center business. OpenAI's recent deal to purchase a large cluster of AMD's upcoming data center GPUs is a catalyst for growth. This makes AMD a preferred partner of the company behind ChatGPT. AMD also signed a major chip deal with Oracle to supply an AI chip supercluster, starting in the third quarter of 2026.
CEO Lisa Su is not one to overhype the opportunities ahead for her company. "Our record third-quarter performance marks a clear step up in our growth trajectory as our expanding compute franchise and rapidly scaling data center AI business drive significant revenue and earnings growth," she said during the recent quarterly earnings call.
NASDAQ: AMD
Key Data Points
The stock has risen 88% in the last six months, not just because of accelerating revenue momentum, but also because this insatiable demand is expected to boost AMD's margins. Data center GPUs are incredibly lucrative products. Just ask Nvidia, which is earning a profit margin of over 50%.
By comparison, AMD's 10% profit margin leaves considerable room for improvement as it scales its data center GPU business. AMD's free cash flow, which shows the actual amount of cash a company generates after all expenses, tripled year over year in the third quarter. Analysts expect AMD's free cash flow to grow at an annualized rate of 66% through 2029, reaching nearly $31 billion.
Assuming it meets these estimates, the stock has substantial room to run over the next five years. Investors may look at the sharp rise in the stock since the OpenAI deal was announced and think it's too late. In reality, all the stock did was price in the recent jump in free cash flow. At current share prices, the stock is trading at just 12 times the 2029 consensus estimate for free cash flow. That's an excellent value for a business addressing the monumental need for additional AI infrastructure.
