The Tax-Free Savings Account (TFSA) is a popular registered account in Canada, allowing residents to hold various asset classes. Moreover, any gains generated in this account are exempt from taxes, making the TFSA ideal for growth investors.
Most Canadians use the TFSA to buy TSX stocks and mutual funds. However, you can diversify your equity portfolio further by purchasing quality stocks south of the border, which lowers portfolio risk. In this article, I have identified one such TFSA stock you can buy right now and generate outsized gains in 2025 and beyond. Let’s see why.
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Hold AMD stock in the TFSA
Valued at a market cap of US$163 billion, Advanced Micro Devices (NASDAQ:AMD) is among the largest companies in the world. The tech stock has grossly underperformed the broader markets in recent years, as it currently trades over 50% below all-time highs. However, the ongoing pullback allows you to gain exposure to a quality stock trading at a discount.
AMD concluded a transformative 2024 with record-breaking financial results. It reported fourth-quarter (Q4) revenue of US$7.7 billion, up 24% year over year, driven primarily by exceptional performance in its data centre and client segments. Its annual revenue grew 14% to US$25.8 billion, with net income increasing 26% and free cash flow more than doubling compared to 2023.
“2024 was a transformative year for AMD. We successfully established our multi-billion-dollar data centre AI [artificial intelligence] franchise, launched a broad set of leadership products, and gained significant server and PC market share,” said Chief Executive Officer Lisa Su during the earnings call.
The data centre segment emerged as AMD’s powerhouse, contributing roughly 50% of annual revenue and growing 69% year over year to a record US$3.9 billion in Q4. This growth was fueled by the company’s fifth-generation EPYC Turin processors and strong double-digit percentage growth in fourth-generation EPYC sales. Su noted that AMD exited 2024 with “well over 50% share at the majority of our largest hyperscale customers.”
AMD’s data centre AI business delivered over US$5 billion in revenue for 2024, marking the successful establishment of its Instinct accelerator line. Production deployments expanded with major cloud partners, including Meta, Microsoft, and IBM. AMD’s AI accelerators now power five of the world’s 10 fastest supercomputers, including the El Capitan system, which delivers 1.7 exaflops of computing performance.
The client segment also posted impressive results, with revenue increasing 58% year over year to a record US$2.3 billion. AMD gained client market share for the fourth consecutive quarter, driven by strong demand for both Ryzen desktop and mobile processors.
Is AMD stock undervalued?
Looking ahead to 2025, AMD expects “strong double-digit percentage revenue and EPS growth” as demand strengthens across all business segments. AMD’s AI roadmap is accelerating, with next-generation MI350 series sampling starting this quarter and production shipments expected by mid-year. The MI350 series features a 35-fold increase in AI compute performance compared to the previous generation.
Chief Financial Officer Jean Hu provided Q1 guidance of approximately US$7.1 billion in revenue, up 30% year over year, with a non-GAAP (generally accepted accounting principles) gross margin of around 54%.
According to consensus estimates, AMD is forecast to increase the following:
- Sales from US$25.78 billion in 2024 to US$31.8 billion in 2025 and US$38.4 billion in 2026
- Earnings per share from US$3.31 in 2024 to US$4.68 in 2025 and US$6.5 in 2026
- Free cash flow from US$2.3 billion in 2024 to US$6.77 billion in 2025 and US$7.9 billion in 2026
So, priced at 4.2 times forward sales, 15.5 times forward earnings, and 20.7 times forward free cash flow, AMD stock is relatively cheap. Given consensus price targets, the tech stock trades at a discount of almost 50% in March 2025.
