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AMD Earnings: Strong, but We Think Investors Wanted Greater AI Optimism

Shares fell about 3% after hours, and we think AMD stock is a bit overvalued.

The AMD Logo photographed off the screen of an iphone.
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Advanced Micro Devices Inc
(AMD)

Key Morningstar Metrics for Advanced Micro Devices

What We Thought of Advanced Micro Devices’ Earnings

Advanced Micro Devices AMD reported strong third-quarter revenue, up 20% sequentially, up 36% year over year, and above the high end of guidance. AMD’s fourth-quarter revenue forecast of $9.6 billion would represent growth of 4% sequentially and 25% year over year, and was ahead of FactSet consensus estimates.

Why it matters: AMD continues to execute well with strong growth in client (PC) revenue, server processors (CPUs), and artificial intelligence products. Meanwhile, AMD is optimistic that its OpenAI deal will generate “well over $100 billion” in revenue in the next few years.

  • Data center revenue of $4.3 billion rose 34% sequentially and 22% year over year, thanks to a healthy CPU server market and share gains over Intel. AMD’s AI business also fared well, and our initial guess is that both servers and AI products grew a little over 20% year over year.
  • Client revenue from the PC end market grew 10% sequentially and 46% year over year, as AMD is again gaining share over Intel across desktops, gaming PCs, and PCs sold into enterprises.

The bottom line: We maintain our $210 fair value estimate for narrow-moat AMD and retain our Very High Uncertainty Rating, as vastly different scenarios may play out for AMD’s AI business over time.

  • Shares fell about 3% after hours, and we suspect investors were seeking both greater insight and greater optimism into AMD’s AI business. Shares still appear a bit overvalued to us.
  • We think AMD’s comments around $100 billion-plus of OpenAI revenue and “tens of billions” of AI revenue coming in 2027 might be conservative, but have already been baked in by the market at this point.

Coming up: AMD expects fourth-quarter data center revenue to rise over 10% sequentially.

  • AMD will host an analyst day next week, where we hope to learn more about its AI prospects. We may hear more optimism at this event, and AMD hinted that its prior forecast of $500 billion of industrywide AI processor revenue by 2028 will be revised upward next week.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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