AMD's near-term results are slightly ahead of expectations, and data center growth accelerates significantly in 2027, but warrant costs and high valuation cap upside

Overview

AMD's quarterly results and next-quarter guidance were modestly above consensus expectations. Server CPUs continued to perform strongly, the AI GPU business is expected to accelerate meaningfully in 2027 driven by Helios and MI450 products, and the embedded business is also recovering. Morgan Stanley therefore raised its revenue, profit, and price target forecasts, but believes near-term GPU upside is limited and that warrant issuance amounts to a high cost of equity. Given that the current valuation is already above large AI semiconductor peers and the share price also exceeds the price target, the report maintains an Equal-weight rating.

Core views

First, the server business is currently the most certain growth engine, with revenue growing more than 70% year over year, and it is expected to maintain similar or higher levels over the next six quarters. Second, the long-term opportunity for AI GPUs has improved significantly, with management expecting related revenue in 2027 to far more than double, but incremental growth in the second half of 2026 is limited by product launch timing and supply constraints. Third, AMD continues to gain share in client and server processor markets, and the embedded business has accelerated for three consecutive quarters, though memory pressure and gaming business declines provide partial offsets. Fourth, issuing warrants to large customers helps promote adoption, but will create meaningful economic costs and potential dilution over the next three to four years, making GPU revenue quality and true customer investment harder to assess. Fifth, the valuation of about 31x FY2027e earnings already embeds strong expectations for AI and share gains, and the risk/reward does not support an upgrade.

Analysis framework

The report evaluates AMD by combining quarterly results versus consensus expectations, segment revenue breakdowns, management guidance, Morgan Stanley ModelWare earnings forecasts, relative peer valuation, and bull, base, and bear case scenario analysis. The price target is calculated using FY2027e ModelWare EPS and an approximately 31x P/E multiple, and scenario sensitivity is tested through server share, AI GPU revenue, competitive dynamics, customer warrants, and supply constraints.

Methodology notes

• Earnings forecastMorgan Stanley ModelWare

  Forecasts revenue, margins, and earnings per share based on company operating data, management guidance, and business assumptions.

  Unless otherwise specified, the report's metrics are based on the Morgan Stanley ModelWare framework; actual data, consensus expectations, and Morgan Stanley forecasts use different identifiers.

• Valuation methodsForward P/E valuation

  Derives the target price by multiplying FY2027e ModelWare EPS by the target P/E multiple.

  The base case uses approximately 31x FY2027e ModelWare EPS of $15.09, resulting in a $465 price target; this multiple is above large AI semiconductor peers such as NVDA and AVGO, reflecting server CPU share gains and long-term AI growth opportunities.

• Scenario analysisBull, base, and bear cases

  Forms a price range based on the degree of earnings realization and changes in valuation multiples.

  The bull case uses approximately 35x FY2027e EPS of $20.13, corresponding to $700; the base case uses approximately 31x EPS of $15.09, corresponding to $465; the bear case uses approximately 25x EPS of $11.50, corresponding to $290.

• Relative comparisonConsensus expectations and peer comparison

  Compares actual performance, company guidance, and institutional forecasts with market consensus and key competitors.

  The report compares AMD with Intel in server and client share trends, and uses large AI semiconductor companies such as NVDA and AVGO as valuation references.

Asset mapping & comparison

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

• AMD.US

  Core research subject

  Strengths

  Server CPU share continues to rise, and data center revenue is growing rapidly; AI GPU has large customers and multi-year product investment; the embedded business is recovering.

  Weaknesses

  The AI software ecosystem and return on investment still need validation, and GPU business disclosure is limited; warrant issuance brings potential dilution and high economic costs; client is affected by memory pressure.

  Comparison

  The target valuation of about 31x FY2027e earnings is above large AI semiconductor peers such as NVDA and AVGO, reflecting its server CPU and AI growth opportunities, but also reducing valuation margin for error.

  Risks

  Helios or MI450 execution falling short of expectations, supply constraints, insufficient demand durability, customer concentration, increased competition from Intel or NVIDIA, and valuation multiple contraction.

• INTC

  Main competitor in server and client CPUs

  Strengths

  Supply trends are improving, with server CPU shipment growth turning from a 5% year-over-year decline in the first quarter to 9% year-over-year growth in the second quarter.

  Weaknesses

  AMD is still continuing to gain share in server and notebook processor markets.

  Comparison

  AMD's product roadmap execution and share gains are stronger, but Intel's supply improvement may weaken AMD's growth momentum in 2027.

  Risks

  If Intel's competitive products and supply recovery are faster than expected, AMD's room for server share gains may narrow.

• NVDA、AVGO

  AI semiconductor valuation and competition references

  Strengths

  They have more mature AI market positions or clearer earnings quality.

  Weaknesses

  The report does not conduct a complete standalone assessment of their businesses.

  Comparison

  AMD's base-case target valuation carries a premium versus these large AI semiconductor peers, supported mainly by server CPU opportunities and long-term AI growth expectations.

  Risks

  If AMD cannot narrow the gap with NVIDIA in data center GPU performance, ecosystem, and customer return on investment, the valuation premium may contract.

Key data

• Quarterly revenue$11.536bnUp 12.5% quarter over quarter and 50.1% year over year, above market consensus of $11.306bn.
• Data center revenue$6.718bnUp 16.3% quarter over quarter and 107.3% year over year, the main source of growth.
• Client revenue$3.062bnUp 6.1% quarter over quarter and 22.5% year over year.
• Gaming business revenue$0.779bnUp 8.2% quarter over quarter and down 30.6% year over year; expected to decline further in the second half.
• Embedded revenue$0.977bnUp 11.9% quarter over quarter and 18.6% year over year, with growth accelerating for the third consecutive quarter.
• Quarterly non-GAAP EPS$1.66Above market consensus of $1.62 and Morgan Stanley's prior forecast of $1.61.
• September-quarter revenue guidance$13.0bnMidpoint implies 12.7% quarter-over-quarter growth, above market consensus of $12.528bn.
• FY2026 forecastRevenue $51.147bn; non-GAAP EPS $7.67Prior forecasts were $49.623bn and $7.41, respectively.
• FY2027 forecastRevenue $88.987bn; non-GAAP EPS $15.54Revenue is expected to grow 74% year over year; prior forecasts were revenue of $76.102bn and EPS of $14.19.
• Price target$465Raised from $410, based on approximately 31x FY2027e ModelWare EPS of $15.09.

Impact & implications

The earnings forecast upgrades indicate that AMD's growth momentum in server CPUs, data center GPUs, and embedded markets is stronger than previously assessed, and 2027 could become a key year of accelerated revenue and profit growth. However, the current share price already exceeds the base-case price target, and valuation is also above some large AI semiconductor peers. If AI GPU scaling depends on high-cost warrant arrangements, revenue growth may not translate proportionally into shareholder earnings. Therefore, fundamental improvement is more likely to support a higher valuation rather than create sufficient incremental upside from the current price.

Risks

• Issuing warrants to large customers will create significant economic costs and potential equity dilution over the next three to four years, weakening the conversion of revenue growth into earnings per share.
• Data center GPU revenue depends on a small number of large customers, and warrant arrangements also make true customer demand and purchase commitments harder to assess.
• A sudden rise in server demand may not be sustainable for multiple years, while Intel, ARM, AWS, Axion, and NVIDIA are all accelerating product launches to compete for share.
• Recent supply constraints may limit server and GPU revenue realization, although longer lead times improve visibility.
• If Helios and MI450 performance, software ecosystem, deployment progress, and customer return on investment fall short of expectations, the AI GPU business may underperform market expectations.
• The client business faces memory cost pressure, and the third and fourth quarters may be significantly weaker than seasonal levels, while the gaming business is expected to decline meaningfully in the second half.
• The current share price is above the price target and valuation embeds high AI growth expectations, so any earnings or execution shortfall could trigger valuation multiple contraction.
• Morgan Stanley has investment banking and other business relationships with AMD, and investors should treat this report as only one factor in their decision-making.

What to watch

• The launch timing, performance validation, and 2027 mass-production ramp of Helios and MI450 products in the fourth quarter.
• Whether server revenue can maintain 70% or higher year-over-year growth over the next six quarters.
• Whether AI GPU revenue can grow further from a run-rate level above $25bn at the end of 2026 and approach the expected 2027 range of $38bn to $45bn.
• The actual purchasing cadence of the three large committed customers, customer concentration, and the impact of warrant terms on earnings per share.
• Whether supply improvement can remove the recent revenue cap, and whether competitors' capacity expansion intensifies pricing and share pressure.
• Data center gross margin, company non-GAAP gross margin, and the actual contribution of high-growth businesses to margins.
• Intel server product competitiveness and supply recovery, as well as NVIDIA's competitive response in the data center GPU market.
• Whether the embedded business can continue to accelerate driven by aerospace and defense, networking, and edge AI demand.