Advanced Micro Devices (NASDAQ:AMD) is trying to solve two problems at once: proving its AI hardware can keep growing as fast as Street expects, and making a case for why that growth alone should justify the stock’s price. On August 6, AMD confirmed a deal to buy Taalas, a Toronto-based startup building specialized silicon for AI inference, a move aimed squarely at the first problem even as the second has been driving the stock’s swings all week.
Bull Case: A Full Stack Getting Fuller
Taalas, founded in 2023, has built technology that optimizes how data moves during AI inference, cutting the compute and memory bottlenecks that slow general-purpose chip designs. AMD plans to fold that technology into its accelerator roadmap and pair it with AMD Instinct GPUs, adding another layer to a platform that already spans Helios rackscale systems, EPYC CPUs and the ROCm software stack. The deal, still subject to regulatory approval, also extends AMD’s long-standing presence in Canada, where the company says it intends to keep growing its engineering talent base.
The underlying business backs that ambition up. Second-quarter revenue hit a record $11.5 billion, up 50% year-over-year, with data center revenue alone climbing 107% to $6.7 billion. Adjusted EPS jumped 246% to $1.66, and operating margin improved to 17% from a 2% loss a year earlier. AMD has picked up customers once seen as Nvidia territory, including Oracle, Microsoft and OpenAI, and CEO Lisa Su says AMD has lined up 6 gigawatts of committed capacity apiece from OpenAI and Meta Platforms for its new MI450 chips and Helios racks. Su has pegged the AI data center chip market at $1.4 trillion annually by 2030 and forecasts that AMD’s own data center sales will roughly double once more in 2027.
Bear Case: Why A Good Quarter Still Sent The Stock Lower
Despite that quarter, AMD shares fell, and the simplest explanation is that much of the good news was already baked into the price. The stock trades at nearly 70 times forward earnings, a multiple that assumes years of growth are already locked in. Some of AMD’s headline growth rate is also flattered by an easy comparison: a US government ban on chip sales to China in April 2025 depressed AMD’s results a year ago, making this year’s percentage gain look larger than the underlying quarter-over-quarter trend, which came in at 16%.
The Market’s Read On The Stock
Hedge fund ownership of AMD ticked up from 132 funds in the prior quarter to 134 in the most recent one, a modest increase suggesting institutional interest is holding steady rather than swinging hard either way. Short interest is low at 2.45% of float, showing little organized betting against the stock. Even so, AMD carries a forward price-to-earnings ratio of 65.36 as of August 7, a rich multiple that leaves the stock priced for the growth story to keep delivering rather than for any near-term stumble.
The Bet Investors Are Actually Making
AMD’s Taalas purchase and its data center numbers point to a company genuinely closing the gap on Nvidia in AI hardware, while its valuation shows the market has already given AMD substantial credit for doing so. The next several quarters of Helios shipments and MI450 adoption will show whether AMD’s growth can keep outrunning a stock price that already assumes a lot goes right. How that plays out against Nvidia’s own roadmap, more than the Taalas deal itself, is likely what decides where AMD’s stock goes from here.
While we acknowledge the risk and potential of AMD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMD and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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