Key Points
TD Cowen analyst Joshua Buchalter reiterated a buy rating and $675 price target on AMD this morning.
Agentic AI demand could drive AMD's CPU sales up 70% next year.
Advanced Micro Devices (NASDAQ:AMD) stock jumped 3.6% through 12:30 p.m. ET Monday.
You can thank the friendly analysts at TD Cowen for that. AMD stock may have lost 16% of its value over the past two weeks as semiconductor stocks sold off, but Cowen still thinks AMD stock is a buy.
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Why Cowen loves AMD stock
TD Cowen analyst Joshua Buchalter reiterated his buy rating and $675 price target on AMD this morning, citing "growing adoption of agentic AI and production inference workloads." Whereas AI training requires GPUs, you see, AMD's CPUs are better suited for "coordination of multi-step workflows, tool calls, API management, and sequential decision-making" in agentic AI.
AMD seems to agree. The company recently doubled the estimated size of its total addressable market to $220 billion and predicted its sales of CPUs for AI data centers will rise 70% in 2027.
What's next for AMD stock
Is that enough to make AMD stock a buy?
At first glance, the stock still looks richly priced at more than 156 times trailing earnings. But here's the thing: That P/E ratio is based on AMD's $6.4 billion in reported net income. When valued on free cash flow, though, AMD is actually generating more than $8.4 billion in real cash profit.
And that's enough to drop the company's price-to-free cash flow ratio down to just 102x.
Mind you, a P/FCF ratio of 102x still is not obviously "cheap," but with a long-term forecast growth rate of 60%, the stock's price-to-FCF-to-growth ratio is only about 1.7 -- a lot cheap-er than its PEG ratio of 2.6.
While not an obvious bargain, AMD stock is at least a bit cheaper than it looks. While I hesitate to buy it myself, I see why Cowen might think it's a buy.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.