Is it Too Late to Buy AMD Stock?
Summary
Parkev begins by addressing whether it's too late to buy AMD stock, which has surged almost 140% by 2026. He notes that AMD's significant price increase is largely due to finally delivering the anticipated huge revenue growth from the data center market, a development he had previously highlighted by recommending the stock as a buy in 2024. This growth stems from corporations diversifying away from Nvidia and AMD successfully capturing a meaningful part of the market, with management expecting continued market share gains throughout the decade.
Analysts are forecasting robust revenue growth for AMD, projecting an acceleration from 34% growth in 2025 (reaching $34.6 billion) to 43% in 2026 (almost $50 billion), and a further 54% in 2027 (up to $76 billion). Even with a deceleration in 2028, revenues are expected to surpass $102 billion. This means analysts anticipate AMD's revenue to roughly triple between 2025 and 2028. Accompanying this sales boom, AMD's profit margins and cash flow to sales are also increasing, with cash flow to sales reaching a record high of 22.3% in 2025. However, AMD's operating profit margin at 10.7% has not yet recovered to its 2021 peak and still significantly lags behind Nvidia, whose operating profit margins are roughly six times higher.
Despite the impressive growth, Parkev emphasizes the importance of valuation. He finds AMD stock to be almost as expensive as it has ever been, with a forward price-to-earnings ratio of 56 and a forward price-to-operating cash flow of 79. His customized discounted cash flow (DCF) model, which forecasts AMD's free cash flow to grow from $8.3 billion in 2026 to over $110 billion by 2035, and then at a 5% rate beyond, yields a fair value of $362. Given the current market price is above $511, Parkev concludes that AMD stock is overvalued at these levels. Therefore, while he previously recommended it, he now rates the stock as a 'hold,' advising investors to wait for a price pullback for a more attractive buying opportunity.
Mentioned Stocks
Reasoning: Parkev notes AMD's strong revenue growth, with analysts forecasting a near tripling of revenues between 2025 ($34.6B) and 2028 (over $102B). Profit margins and cash flow are improving, but still trail Nvidia. Despite this strong fundamental performance, Parkev's valuation analysis indicates the stock is currently overvalued. The forward price-to-earnings ratio is 56 and the forward price-to-operating cash flow is 79, making it almost as expensive as it has ever been. His customized discounted cash flow (DCF) model, projecting significant free cash flow growth from $8.3 billion in 2026 to over $110 billion by 2035, calculates a fair value of $362. Given the current market price is above $511, he concludes it's not a buying opportunity at present and advises waiting for a pullback.