Market volatility has been fueled by tensions with Iran and chatter about an artificial intelligence (AI) bubble. While many investors seemed to be in a state of panic, I decided to make a purchase: Advanced Micro Devices (NASDAQ: AMD). I see a solid opportunity here that appears undervalued.
AMD tends to play a supportive role in the market, especially compared to Nvidia, which leads in the graphics processing unit (GPU) sector. AMD, however, dominates in the central processing unit (CPU) market, which is considerably smaller than the booming GPU market—essentially the go-to for training large-scale language models (LLMs) and data processing. The CPU is often seen as the computer’s brain.
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The market for CPUs is on a steady growth path, but the rise of agent AI is expected to ramp up revenues significantly. This is primarily because AI agents depend heavily on sequential logic—something GPUs can’t effectively manage. As a result, workloads are shifting towards CPUs, which excel at coordinating tasks and managing complex memory usage.
This trend could extend the need for high-performance CPUs beyond just data centers into personal computers even. AMD’s latest CPUs are engineered to handle continuously running systems that can juggle multiple AI tasks all at once.
Essentially, AMD envisions a future where PCs are more than just tools—they aim to be extensions of the user. This perspective presents an additional source of potential growth.
In the meantime, following a partnership with OpenAI, Meta Platforms is another area where AMD is likely to see a significant uptick in GPU sales. The two companies have agreed on a procurement of 12 gigawatts worth of GPUs, which adds up to over $200 billion in orders.
AMD will also offer a guarantee equivalent to 10% of their company to these partners, helping secure their customer base. However, certain stock purchase options will only fully activate if specific price thresholds are hit and orders are executed.
These substantial orders will incorporate AMD’s ROCm (Radeon Open Compute) software platform within OpenAI and Meta’s data hubs, positioning AMD’s GPUs as credible alternatives for processing needs. This partnership is particularly timely as data center CPU usage begins to surge. ROCm is designed specifically for AI, machine learning, and high-performance computing.
By combining its CPU investments with GPU endeavors, AMD stands out as one of the top stocks in the AI space.
Before diving into buying Advanced Micro Devices stock, there are a few points to mull over.
Our analysts at Motley Fool Stock Advisor have pinpointed the 10 best stocks currently available for investment, and, interestingly, AMD isn’t featured among them. These picks all seem poised for impressive future returns.
For context, consider Netflix—if you had invested $1,000 when it was first recommended in December 2004, you’d now be looking at around $490,325! Similarly, an investment in Nvidia back in April 2005 would have grown to about $1,074,070!
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