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Shares of Advanced Micro Devices (NASDAQ: AMD) are well off their previous high of $227, but most Wall Street analysts remain optimistic about the stock's upside potential.

One TD Cowen analyst has a buy rating on AMD shares and recently raised the investment firm's price target from $185 to $200. This implies an upside of 29% within the next year from the current stock price. Here's what's baked into TD Cohen's assumptions.

Is AMD stock a buy?

AMD stock soared out of the gate this year following upbeat commentary from management on theearnings callin January. Executives mentioned that the early customer response for the new MI300 chip was "overwhelmingly positive." Microsoft is using the MI300X chip to more efficiently serve its Azure cloud service and power OpenAI's GPT-4 large language model.

The question is whether the data center demand for AMD's chips will be able to offset expected weakness in other areas of the business. AMD is coming off a year where its client segment revenue, including PC chips, fell 25%. TD Cowen said it believes strong demand for data center chips will exceed expectations and take the focus off those weak areas. The analyst firm expects revenue from the MI300 to reach $4.5 billion in 2024, or $1 billion higher than the company's guidance.

Long-term, TD Cowen sees earnings per share growing at an annualized rate of nearly 40% per year to reach $10 EPS by 2027. That would potentially put the stock price at over $400 if it's still trading at the same price-to-earnings ratio.

AMD's earnings more than doubled in the fourth quarter of 2023, so it's off to a good start. Assuming no hiccups with the broader market or economy, this GPU stock could reach TD Cowen's price target within the next 12 months on its way to bigger gains over the next several years.

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John Ballard has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.