Advanced Micro Devices' (AMD 11.01%) share price rocketed higher in April, clocking red-hot gains of more than 59% as of this writing. Investors have been buying AMD stock hand over fist amid renewed confidence in tech stocks following a tepid start to the year.
Of course, the situation in the Middle East remains fluid, but it won't be surprising to see AMD maintain its solid momentum in the market. The company is set to release its first-quarter results after the market closes on May 5, and there is a good chance the stock will jump higher following its upcoming report.
Let's see why that may be the case.
Image source: AMD.
AMD's results and outlook could exceed expectations
AMD management guided for $9.8 billion in Q1 revenue, which would be a 32% increase over the year-ago period. Additionally, its non-GAAP gross margin is expected to increase by a percentage point year over year to 55%. Analysts, however, have higher expectations. They forecast its revenue to land closer to $9.9 billion. Additionally, AMD's earnings are estimated to jump by 33% to $1.28 per share. AMD's earnings could easily beat Wall Street expectations, thanks to the healthy revenue growth and margin gains that it is forecasting.
Additionally, the company's guidance could be better than expected. That's because it will start fulfilling the massive contracts it signed with OpenAI and Meta Platforms last year. AMD will start deploying 6 gigawatts (GW) of data center computing capacity for both these companies in the second half of 2026.
Another factor that could help AMD deliver stronger-than-expected bottom-line growth is the rising prices of central processing units (CPUs). Reports suggest that a shortage of client CPUs used in personal computers (PCs) and laptops could lead to a 15% price increase for AMD CPUs in March and April.
NASDAQ: AMD
Key Data Points
Meanwhile, the prices of server CPUs used in AI data centers have reportedly gone up by 20% since last month, as reported by TrendForce. The report adds that the price hikes will continue over the next couple of quarters as the demand for server CPUs exceeds supply.
All this suggests that AMD is indeed positioned to deliver a beat-and-raise quarterly report, which could give this AI stock a nice shot in the arm.
The stock is likely to deliver impressive long-term upside
AMD's recent rally has made the stock expensive. It trades at 133 times trailing earnings. However, the forward earnings multiple of 52 is significantly lower, and points toward a big jump in its earnings. Analysts are expecting a 61% increase in AMD's earnings this year to $6.71 per share. This is likely to be followed by healthy growth over the next couple of years as well.
Data by YCharts.
AMD, however, could beat those estimates. Its growth should accelerate further due to sizable contracts with Meta and OpenAI, which could help AMD maintain its premium valuation. But even if its earnings increase to $14.94 per share by the end of 2028 and it trades at 40 times earnings at that time (a slight discount to the U.S. tech sector's average earnings multiple of 43), its stock could jump to $598.
That's 79% higher than the current stock price, suggesting that it isn't too late for investors to buy this semiconductor stock.
