An investment of $1,000 made in shares of Advanced Micro Devices (AMD -1.25%) three years ago is now worth more than $4,600, and it is worth noting that a big chunk of those gains has arrived in the past year and a half.
AMD stock has taken off big time of late amid the company's growing prominence in artificial intelligence (AI) chips. Investors, however, may be wondering if there is more upside in store for this chipmaker following the phenomenal upside it has already delivered.
We will take a closer look at AMD's prospects and valuation in this article to determine where this semiconductor stock will be in five years.
Image source: The Motley Fool.
AMD's expanding addressable opportunity points toward terrific long-term growth
Semiconductor demand isn't slowing down, primarily due to the growing demand for chips used in AI data centers. AMD management noted on its recent earnings call that it sees the total AI compute market growing to $2 trillion in 2030, clocking an annual growth rate of 40% over the long run.
NASDAQ: AMD
Key Data Points
The company also points out that the total addressable market (TAM) for data center accelerators will increase at a 45% annual rate through 2030, clocking $1.4 trillion in revenue by the end of the decade. The good news for AMD investors is that its data center business is growing faster than the end market.
It reported a 107% year-over-year increase in data center revenue in Q2 to $6.7 billion, fueled by the improving demand for both its Epyc server processors and Instinct graphics processing units. That was an improvement over the 57% revenue growth AMD clocked in the data center segment in Q1. The company has generated $12.5 billion in data center revenue in the first half of the year, putting this segment's annual run rate at $25 billion for 2026.
Assuming AMD's data center revenue grows in line with the overall market's estimated growth rate of 45% over the next five years, its revenue from this segment will reach $160 billion in 2031. That's almost 4x AMD's revenue in the trailing twelve months. Not surprisingly, AMD is now confident of "significantly" exceeding its three-to-five year annual revenue growth target of 35% and earnings per share estimate of $20.00 that it outlined at its financial analyst presentation in November last year.
In fact, analysts expect AMD to exceed its $20.00 earnings-per-share target in 2028, following recent upward revisions to their estimates.
Data by YCharts
Importantly, the company's long-term earnings growth estimates have also jumped nicely.
Data by YCharts
Can the stock become a multibagger over the next five years?
We have already seen in the chart above that AMD's earnings are expected to nearly triple in just two years, with an annual growth rate of nearly 70% between 2026 and 2028. Assuming AMD's bottom line grows at a relatively conservative annual pace of 40% in the three years following 2028, its earnings per share could reach $59.52 after five years.
Multiplying the projected earnings by the tech-laden Nasdaq-100 index's forward earnings multiple of 26 (by using the index as a proxy for tech stocks) suggests that this AI stock could jump to $1,547 in five years. That's just over triple AMD's current stock price, which means that it isn't too late for investors to buy this high-flying tech stock.
