Advanced Micro Devices (AMD 3.46%) has been a bit of a hot and cold stock. Since the start of 2025, it's up around 71%, but right now it's down around 22% from its all-time high set in late October 2025.
While AMD's artificial intelligence (AI) offerings have improved, the reality is that it's still behind Nvidia (NVDA 1.53%), and with other computing options launching from Broadcom, AMD's odds of turning its stock price performance around are getting worse.
Management remains optimistic that AMD will succeed over the next five years, and some solid signs could ignite a huge rally. AMD's stock could go in a lot of different directions, but which path is the most appropriate one to take for long-term investors right now?
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Why to buy: AI spending will boost AMD's business
Management is very bullish on its five-year prospects. In November, management offered guidance for a 60% compounded annual growth rate (CAGR) in its data center division -- the division that's most exposed to all the AI spending that's going on. With capital expenditure plans now revealed by several AI hyperscalers, and with just Amazon, Meta Platforms, and Alphabet committed to spending over $500 billion in capital expenditures during 2026, there is plenty of potential revenue to capture.
NASDAQ: AMD
Key Data Points
AMD hasn't historically been a major player in the AI realm, and its equipment has mostly been viewed as an alternative to Nvidia's offerings. If AMD can change that view, success should follow. AMD's projected 60% CAGR alone should boost the stock over the next five years.
Why to hold: Investors need to see a substantial turnaround
In AMD's fourth-quarter results, progress was seen toward hitting the 60% CAGR goal, but AMD is still a long way away from achieving it. In Q4, AMD's data center segment increased its revenue 39% year over year. That's not 60% as forecast, but it's a large improvement over the third quarter's 22% growth. Investors need to see a few more quarters of improving results before they should be convinced that AMD's turnaround is real. That suggests holding on to the stock seems like a good idea, rather than scooping up more.
Why to sell: Why own AMD versus Nvidia?
Even if AMD turns it around, why would investors want to own AMD over Nvidia? It's far easier to invest in companies that are already excelling, and Nvidia is doing just that. It's growing its AI businesses at a much faster rate than AMD, and the stock also trades for a lower valuation.
Data by YCharts. PE = price-to-earnings.
At 24 times forward earnings, Nvidia looks like a bargain compared to AMD, and you don't have to wait for a turnaround to occur -- it's excelling right now.
Of all three arguments, I fall somewhere between the hold and sell camps. I think AMD could turn it around, but I need to see evidence that it's occurring. Even if it does turn it around, Nvidia is a much stronger company, and it makes more sense to invest in it.
