The stock market is on a roll. As of this writing, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are all at — or approaching — all-time highs. That said, there are still some stocks that have lagged the benchmark indexes.
Today, let's take a look at one such name and why it may be lagging: Advanced Micro Devices (AMD -0.82%). And is this an opportunity now for investors?
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How Advanced Micro Devices' stock has performed
First, let's recap AMD's recent performance. The stock has been on a roller coaster for much of the last three years. As you can see in the chart below, AMD stock soared from a low of around $56 to a high of $211 during a roughly 18-month run that began in late 2022.
Then, the stock gave back nearly all of those gains before regaining momentum about four months ago. However, after an impressive performance, AMD's stock has seemingly run out of steam once again. All told, the stock is still up 31% year to date, although it remains about 25% off its all-time high.
What's next for AMD
So AMD's stock has been volatile. That much is clear. Yet, the company is one of the major players in perhaps the hottest sector of the economy: semiconductors. Granted, AMD isn't in a position to dethrone Nvidia anytime soon — Nvidia's artificial intelligence (AI) chips remain the preferred option for many AI developers.
However, AMD is gaining converts to its products. Just a few days ago, none other than Elon Musk praised AMD's chips and noted that, “AMD is now working pretty well for small to medium sized models.”
That's great news for AMD, which already has MI325 AI chips in production now, with plans to roll out more advanced MI350 chips in late 2025 and its most advanced MI400 slated for delivery in 2026. With these planned rollouts, AMD is aiming to directly compete with Nvidia and take meaningful market share of the red-hot AI chips market.
In response, Wall Street analysts are starting to raise their sales estimates. According to YCharts data, consensus estimates for AMD's 2026 revenue have increased by nearly 8% over the last three months. Moreover, according to data compiled by Yahoo! Finance, analysts now expect AMD to generate $40 billion in revenue in 2026, up 22% on a year-over-year basis.
While AMD's revenue still trails Nvidia by a mile (Nvidia will likely generate over $200 billion in annual revenue for the 12 months ending on Jan. 26, 2026), AMD is showing progress.
Suppose the company can continue to chip away at Nvidia's lead. In that case, it can make meaningful progress toward establishing itself as Nvidia's chief rival in the fast-growing market for advanced semiconductor design.
Is AMD a buy now?
Here's the dilemma when considering AMD stock. Yes, the company is making an impressive push into the AI chips market, which could pay off handsomely in the next few years as its new MI350 and MI400 chips go into full production.
However, the company has lots of ground to make up. Nvidia's projected sales of $200 billion for fiscal year 2026 demonstrate how far ahead it is in the race to control the AI chips market. Nevertheless, with the overall AI market growing by leaps and bounds, AMD's stock is likely to advance steadily in the coming years.
In summary, investors should remain cautiously bullish on AMD stock. It is increasingly becoming an AI chip stock to watch, but Nvidia, for now, remains the king of the hill.
Jake Lerch has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
