AMD Beats Expectations, Bernstein Upgrades to Outperform

Overview

In this earnings review, Bernstein noted that AMD's Q1 2026 performance was impressive, with both revenue and profit beating market expectations. Data centers and client computing were the main growth drivers. Based on continued AI demand and AMD's own profitability model (forecasting EPS over $14 in 2027 and approaching $20 in 2028), the institution upgraded AMD's rating from 'In Line with Market' to 'Outperform,' raising the target price dramatically from $265 to $525.

Core views

Q1 results fully beat expectations: AMD's Q1 revenue reached $10.25 billion (up about 38% year-on-year), Non-GAAP gross margin around 55.4%, and pro-forma EPS at $1.37—all above market expectations. Data center, client computing, and gaming businesses all exceeded expectations, while embedded business remained roughly flat. Data center revenue was $5.775 billion, up 57% year-on-year, and server CPU revenue grew over 50%; client computing revenue was $2.885 billion, up 26% year-on-year, driven mainly by increased Ryzen processor market share in commercial markets. Strong Q2 guidance: Q2 revenue guidance is around $11.2 billion (up about 9% quarter-on-quarter), significantly higher than the market's expectation of $10.5 billion; implied EPS is about $1.59, also above the market's expectation of $1.43. The guidance shows data center revenue will grow double digits quarter-on-quarter to around $6.5 billion, server CPU year-on-year growth exceeding 70%, and AI GPU guidance around $2.6 billion. Client and embedded businesses both grew quarter-on-quarter, but gaming guidance at about $760 million fell short of the expected $793 million. AI and server CPUs drive long-term growth: Management recently doubled the long-term market size (TAM) for server CPUs from $60 billion to $120 billion (annualized growth rate of 35%). Although current AI GPU data (MI355X as a transitional product) is slightly below expectations, core growth comes from the ramp-up of MI455 (Helios) at year-end, especially orders from OpenAI and Meta likely to progress faster than planned. The institution forecasts AMD's AI GPU revenue at about $14.2 billion in 2026 and $43 billion in 2027. Profitability forecasts significantly raised: The institution raised FY2026 revenue forecast from $45.8 billion to $47.9 billion, FY2027 from $76.7 billion to $82.2 billion, and FY2028 from $87.1 billion to $107.1 billion. For EPS, FY2026 was raised from $6.53 to $6.95, FY2027 from $13.23 to $14.60, and FY2028 from $14.69 to $19.46.

Analysis framework

The institution adopted an analysis approach combining segment revenue breakdown with discounted future profitability. First, it broke down AMD's business into four major segments—data centers, client computing, gaming, and embedded—and compared actual results with consensus estimates, identifying the key drivers behind the outperformance (data center CPUs and increased client computing share). Second, it performed an implicit breakdown of Q2 guidance, estimating quarter-on-quarter growth rates and absolute values for each segment, assessing the sustainability of growth momentum. On this basis, the institution focused on analyzing the AI GPU product roadmap (transition from MI355X to MI455) and the pace of customer orders (from OpenAI and Meta), believing that short-term data need not be overly focused on, with the key being the ramp-up at year-end. Finally, the institution updated its three-year earnings model, raising the FY2027 EPS forecast to $14.60, giving it a 35x PE multiple (previously 20x), resulting in a target price of $525, and considering a FY2028 EPS close to $20 plausible.

Methodology notes

• Valuation MethodPE/PEG valuation

  Forward Price-to-Earnings Valuation

  Based on the FY2027 EPS forecast ($14.60), the institution gave a 35x PE multiple, arriving at a target price of $525. This method is suitable for high-growth companies; when earnings growth expectations rise significantly, the market tends to assign higher PE multiples.

• Industry/Industrial Analysis FrameworkPenetration S-curve

  TAM (Total Addressable Market) Expansion Expectation

  Management doubled the long-term market size (TAM) for server CPUs to $120 billion; the institution believes this expectation is reasonable given the boost from Agentic AI workloads. The S-curve analysis framework is used to judge the market penetration pace of new technologies or products; during the acceleration phase of penetration, market size expectations are continuously revised upward.

Asset mapping & comparison

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

• AMD(AMD.US)

  Core coverage asset of the report, benefiting from growing demand for data center CPUs and AI GPUs

  Strengths

  Increased server CPU market share, strong product roadmap competitiveness; rapid customer expansion for AI GPUs (MI455); significantly improved profitability outlook

  Weaknesses

  Short-term AI GPU data slightly below expectations (MI355X as a transitional product); operating expenses consistently higher than expected; historically unstable accuracy of bullish calls

  Risks

  Helios ramp-up and customer expansion falling short of expectations; supply constraints; weak PC market in the second half; uncertainty over the sustainability of AI demand

Key data

• Q1 Revenue$10.25 billionUp about 38% year-on-year, above market expectations of $9.89 billion
• Q1 Non-GAAP Gross Margin55.4%Above market expectations of 55.1% and guidance of around 55%
• Q1 Pro-Forma EPS$1.37Above market expectations of $1.28
• Q2 Revenue Guidance$11.2 billionUp about 9% quarter-on-quarter, significantly above market expectations of $10.51 billion
• Q2 Implied EPS$1.59Above market expectations of $1.43
• Target Price$525Raised from $265, based on FY27 EPS of $14.60 giving a 35x PE multiple
• FY2027 EPS Forecast$14.60Raised from $13.23
• FY2028 EPS Forecast$19.46Significantly raised from $14.69

Impact & implications

The report believes that AMD's dual-drive of data center CPUs and GPUs, fueled by AI demand, will provide significant growth momentum. Although the stock price has already risen considerably (up nearly 40% in the past three months, and another 16% after earnings release), based on the institution's own model calculations of profitability (over $14 in FY27 and close to $20 in FY28), there is still room for valuation upside. The ramp-up of MI455 (Helios) at year-end and potential additional customer expansion could further drive upward revisions in market sentiment and financial forecasts.

Risks

• Helios (MI455) production ramp-up and customer expansion falling short of expectations
• Customer concentration risk (e.g., fluctuations in orders from OpenAI and Meta)
• Supply-side constraints limiting shipments
• Weak PC market in the second half
• Uncertainty over the overall sustainability of AI demand

What to watch

• Production ramp-up progress and customer expansion status of MI455 (Helios)
• Potential new announcements at the July AI Day event
• Changes in server CPU market share and TAM expansion pace