Server and AI growth outlook improves; Bernstein raises AMD target price to $650

Overview

AMD delivered a strong second quarter, with revenue, gross margin, and adjusted EPS all slightly above market expectations. The beat was mainly driven by data center, while the client and embedded businesses also performed better than expected, and gaming was slightly below expectations. Third-quarter revenue and implied EPS guidance continued to exceed consensus expectations, with data center and embedded as the main drivers. Although the stock fell after hours following the earnings release, Bernstein believes fundamentals are improving, and that server CPU share gains, AI GPU ramp-up, and the Helios platform ramp will drive subsequent growth.

Core views

The research institution believes the market’s negative reaction was driven more by elevated prior expectations and already optimistic buy-side views than by a deterioration in fundamentals. AMD’s server CPU volumes and pricing are both showing positive trends, with server business revenue expected to grow by more than 80% year over year in the second half of 2026 and by more than 70% in 2027; management also expects overall data center revenue growth to far exceed 100% in 2027. AI GPUs are expected to ramp with several core customers and the Helios platform in the fourth quarter of 2026 and in 2027. The embedded business has entered a recovery phase, and the client business is also more resilient than expected. The main drag is that operating expenses continue to exceed guidance and market expectations.

Analysis framework

The report compares actual quarterly results with consensus expectations item by item and breaks down growth drivers by data center, client, gaming, and embedded businesses; it updates valuation by incorporating implied third-quarter segment guidance, server share and pricing trends, AI GPU revenue assumptions, and long-term financial forecasts. The target price is determined by applying a P/E multiple to the average of FY2027 and FY2028 adjusted EPS.

Methodology notes

• Relative ValuationForward P/E Valuation

  Uses the average of FY2027 and FY2028 adjusted EPS as the earnings base and applies an approximately 35x P/E multiple.

  Bernstein uses the new FY2027/FY2028 average adjusted EPS of $18.74 and applies an approximately 35x P/E multiple to arrive at a $650 target price; the valuation multiple is unchanged from before.

• Earnings AnalysisComparison of Actual Results with Consensus Expectations

  Compares revenue, margins, operating expenses, EPS, and segment performance against market expectations.

  By comparing second-quarter actual results and third-quarter guidance with consensus expectations, the report identifies positive contributions from the data center, client, and embedded businesses, as well as negative variances from the gaming business and operating expenses.

• Business Driver AnalysisSegment Growth and Market Share Analysis

  Assesses growth quality based on changes in volume, pricing, and share across server CPUs, AI GPUs, client, gaming, and embedded businesses.

  The report evaluates AMD’s medium- to long-term growth potential using server CPU revenue and volume growth, share performance relative to competitors, AI GPU revenue assumptions, and product ramp timing.

Asset mapping & comparison

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

• Advanced Micro Devices Inc（US.AMD）

  Directly covered company

  Strengths

  Server CPU revenue and share are growing rapidly, and AI GPUs have multi-customer ramp potential; the data center, client, and embedded businesses all show improvement, while cash and marketable securities increased.

  Weaknesses

  Operating expenses continue to exceed expectations, the gaming business is weakening, and near-term gross margin guidance is slightly below market expectations.

  Comparison

  Server CPU unit growth is significantly higher than Intel’s; the report estimates AMD server unit shipments grew by at least 40% year over year, while the competitor grew by approximately 9%; however, AMD’s second-quarter results and guidance beat expectations by less than the magnitude implied by Intel’s earlier earnings report.

  Risks

  Decline in the personal computer market, AI GPU customer concentration, reversal of market share trends, margin pressure, and reduced sustainability of AI capital expenditures.

Key data

• Second-quarter revenue$11.536 billionUp approximately 50% year over year and 13% quarter over quarter, above consensus expectations of approximately $11.3 billion.
• Second-quarter adjusted EPS$1.66Above consensus expectations of $1.62.
• Second-quarter non-GAAP gross margin56.2%Slightly above consensus expectations of 56.1%, up approximately 80 basis points quarter over quarter.
• Second-quarter operating expenses$3.394 billionAbove consensus expectations of $3.334 billion, a continuing concern highlighted in the report.
• Second-quarter data center revenue$6.718 billionUp 107% year over year and 16% quarter over quarter, above consensus expectations of $6.554 billion.
• Second-quarter data center GPU revenue estimateApproximately $2.8 billionAbove consensus expectations of approximately $2.65 billion.
• Third-quarter revenue guidance$13.0 billion ± $300 millionThe midpoint implies approximately 13% growth from the second quarter, above consensus expectations of $12.5 billion.
• Third-quarter data center revenue estimateApproximately $8.1 billionAbove consensus expectations of approximately $7.733 billion, with both server CPU and GPU expected to grow quarter over quarter.
• Third-quarter AI GPU revenue estimateApproximately $3.4 billionBroadly in line with consensus expectations of approximately $3.36 billion.
• Third-quarter operating expense guidanceApproximately $3.650 billionSignificantly above consensus expectations of $3.535 billion.
• FY2027 revenue forecast$92.6 billionRaised from the previous $82.2 billion.
• FY2028 revenue forecast$124.8 billionRaised from the previous $107.2 billion.
• FY2027 adjusted EPS forecast$15.56Raised from the previous $14.61.
• Target price$650Raised from $600, based on an approximately 35x forward P/E multiple.

Impact & implications

Results and guidance indicate that AMD is benefiting simultaneously from server CPU share gains and expanding AI GPU demand, with the data center business potentially becoming the core earnings growth engine over the next several years. If the Venice server product and the Helios AI platform ramp as planned, revenue forecasts may still be revised upward further. In the near term, the share price may fluctuate due to high expectations, expense investment, and the cadence of transition quarters, but Bernstein believes the post-earnings pullback offers a relatively attractive entry opportunity.

Risks

• A decline in personal computer market demand in the second half of 2026 could weigh on the client business.
• AI GPU customer concentration is relatively high, and changes in deployment or procurement cadence by core customers could cause revenue volatility.
• Server CPU and GPU market share gains may fall short of expectations, or competitors’ product progress may accelerate.
• R&D and go-to-market investment may keep operating expenses above expectations, weakening the conversion of revenue growth into profit growth.
• Changes in product mix, pricing, or supply costs could pressure gross margins.
• A decline in the overall sustainability of AI infrastructure spending could affect long-term data center growth.
• Market expectations are already high, so even strong earnings growth could trigger a share price pullback if the degree of upside surprise is insufficient.
• Delays in the ramp of Helios, Venice, and other new products, or customer deployments falling short of expectations.

What to watch

• Whether server CPU revenue can achieve year-over-year growth of more than 80% in the second half of 2026.
• The extent to which server business growth of more than 70% and overall data center growth far above 100% in 2027 are realized.
• The ramp speed of the Helios platform in the fourth quarter of 2026 and in 2027, and deployment by core customers.
• Whether quarterly AI GPU revenue can rise from approximately $2.8 billion in the second quarter to approximately $3.4 billion in the third quarter and continue to accelerate.
• Server CPU pricing, product mix, and market share changes after the Venice ramp.
• Whether operating expense growth approaches management’s stated approximately 35% for the year, and whether margin improvement can offset increased investment.
• The sustainability of the embedded business recovery and its contribution to consolidated gross margin.
• The resilience of the client business against the backdrop of a weakening personal computer market in the second half.
• Whether gaming business revenue falls to approximately $630 million in the third quarter, and the pace of subsequent recovery.