Elevated Expectations May Weigh on Near-Term Performance, but the Data Center Growth Path Still Supports Buy

Overview

This report reviews AMD's latest quarterly results, third-quarter guidance, and management's outlook for the 2027 data center business. Quarterly revenue and EPS were slightly above market expectations, and third-quarter revenue and earnings guidance also exceeded consensus expectations. Although management expects 2027 data center revenue growth to be well over 100%, this statement is still below the revenue and gross margin expectations of some of the most bullish investors, so the stock may come under pressure in the near term. Goldman Sachs believes that strong server CPU growth and the quarter-by-quarter ramp of MI-4XX can ultimately support AMD in delivering on its data center growth targets.

Core views

The core view is that the near-term expectations gap may be negative, while medium-term fundamentals remain favorable. AMD has established a strong position in the CPU market and is expanding customer coverage for AI accelerators. MI-4XX is expected to begin shipping in the second half of 2026, with revenue increasing in the third quarter, accelerating further in the fourth quarter, and continuing into the first quarter of 2027. Server CPUs, driven by agentic AI deployments and enterprise data center refresh demand, can partially offset gross margin pressure from the ramp of new GPUs and rack products.

Analysis framework

The report compares actual quarterly data item by item with Goldman Sachs forecasts and market consensus expectations, assesses the revenue, gross margin, and earnings path in combination with management's segment-level guidance, and adjusts 2026–2028 earnings forecasts accordingly. The target price uses a relative valuation method combining normalized EPS and a P/E multiple.

Methodology notes

• Relative valuationP/E target price method

  Determine the target price by multiplying normalized EPS by the target P/E ratio.

  Goldman Sachs applies a 32x P/E multiple to normalized EPS of $20.00 to arrive at a 12-month target price of $640.

• Earnings forecastSegment-level earnings forecast

  Adjust company forecasts based on growth and margin assumptions for the data center, client, gaming, and embedded businesses.

  The report raises 2026–2028 EPS forecasts by an average of 13%, mainly due to higher revenue assumptions, while also considering gross margin pressure from the GPU ramp and positive contributions from server CPUs and the embedded business.

• Expectations gap analysisActuals versus consensus comparison

  Compare actual results, company guidance, Goldman Sachs forecasts, and market consensus expectations to assess the post-earnings stock reaction.

  Although quarterly results and third-quarter guidance were slightly better than consensus expectations, the report believes investors were already positively positioned and the most bullish expectations were higher, so favorable fundamentals may not necessarily translate into a positive near-term stock price performance.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AMD (US.AMD)

  Research subject of the report and Buy-rated stock

  Strengths

  Strong server CPU demand, improved visibility into data center business growth, a clear MI-4XX ramp path, and continued expansion of AI accelerator customer coverage.

  Weaknesses

  Market expectations and valuation requirements are high, initial gross margins for new GPUs and rack products are below the company average, and recent expense guidance is also above market expectations.

  Comparison

  Quarterly revenue, EPS, and third-quarter revenue guidance all exceeded market consensus expectations, but the 2027 revenue and gross margin outlook still did not meet the expectations of the most bullish investors.

  Risks

  Slower adoption of agentic AI, slower-than-expected Meta-related GPU deployments, declining x86 architecture share in the enterprise AI market, and insufficient operating leverage.

Key data

• Quarterly revenue$11.5bnAbove Goldman Sachs and market consensus expectations of $11.3bn.
• Quarterly gross margin56.2%Close to Goldman Sachs' forecast of 56.3% and slightly above market expectations of 56.0%.
• Quarterly operating margin26.8%In line with Goldman Sachs' forecast and slightly above market expectations of 26.7%.
• Quarterly non-GAAP EPS$1.66Above Goldman Sachs and market consensus expectations of $1.61.
• Data center revenue$6.72bnBroadly in line with Goldman Sachs' forecast of $6.7bn and above market expectations of $6.6bn.
• Midpoint of third-quarter revenue guidance$13.0bnAbove Goldman Sachs' forecast of $12.3bn and market expectations of $12.6bn.
• Third-quarter non-GAAP gross margin guidance56%Below Goldman Sachs' forecast of 56.7% and broadly in line with market expectations of 55.7%.
• Third-quarter implied EPS$1.93Above market expectations of $1.85 and Goldman Sachs' forecast of $1.83.
• 2027 data center revenue growth guidanceWell over 100% year over yearGrowth is expected to be driven jointly by the MI-4XX ramp and server CPU demand.
• 2027 data center GPU revenue forecastOver $40bnGoldman Sachs forecast, dependent on a smooth ramp of MI-4XX products.
• Server CPU revenue growth expectationsOver 80% in 2026 and over 70% in 2027Management expects strong growth to continue on a higher revenue base.
• Earnings forecast revisionRaised by an average of 13% for 2026–2028Mainly reflects revenue assumptions above prior forecasts.
• 12-month target price$640Based on a 32x P/E multiple and normalized EPS of $20.00.

Impact & implications

In the short term, strong results and better-than-expected guidance may already have been priced in by positive positioning and higher market expectations, leaving the stock vulnerable to a sell-the-news reaction. Over the medium term, if MI-4XX ramps quarter by quarter as planned, server CPUs continue to gain share, and enterprise data center refresh demand persists, AMD is likely to expand its overall compute market share and deliver on its 2027 data center revenue target. Margin performance will depend on whether growth in high-margin server CPUs and the embedded business can offset initial yield and product mix pressure from GPUs and Helios racks.

Risks

• The adoption pace of agentic AI is slower than expected, weakening demand for server CPUs and accelerators.
• The progress of AMD GPU deployments related to the partnership with Meta is slower than expected.
• The share of x86 architecture in enterprise AI workloads is eroded.
• Revenue growth fails to generate sufficient operating leverage, while expense growth or gross margin pressure weighs on earnings.
• The ramp, delivery, or yield improvement of MI-4XX and Helios racks falls short of expectations.
• Market expectations and valuation are high, so even if results exceed consensus expectations, the stock may still decline because they do not meet the most bullish expectations.

What to watch

• Initial MI-4XX shipments in the second half of 2026, and the magnitude of the revenue ramp in the third quarter, fourth quarter, and first quarter of 2027.
• Whether 2027 data center revenue can achieve management's target of well over 100% year-over-year growth.
• Whether server CPU revenue can grow by more than 80% and 70% in 2026 and 2027, respectively.
• The pace of Helios rack yield improvement and the impact of the data center GPU product mix on overall gross margin.
• Execution against third-quarter revenue guidance of $13.0bn, as well as sequential growth in the data center and embedded businesses.
• Expansion of AI accelerator customer coverage, progress of Meta-related deployments, and changes in AMD's share of the overall compute market.