AMD just passed one test - but it's not done yet

By Britney Nguyen

Analysts are less focused on the latest earnings as AMD prepares to deliver long-term AI targets at next week's analyst day

AMD CEO Lisa Su said the company's record third-quarter performance and fourth-quarter guidance were fueled by its growing data-center AI business.

Advanced Micro Device passed Wall Street's test with its latest earnings report and commentary. Now investors are hungry for more substantial information, which could come next week at the company's analyst day.

Melius Research analyst Ben Reitzes expects AMD (AMD) to share long-term guidance for its AI segment at that event, and he thinks the numbers will offer "meaningful upside" to the view of a $500 billion total addressable market for AI chips by 2028.

To back that up, AMD will need to discuss momentum with customers beyond OpenAI, Reitzes added, pointing to Meta Platforms Inc. (META) and Microsoft Corp. (MSFT) as other high-profile clients.

"All that matters is how AMD articulates its AI revenue ramp with OpenAI and others at its analyst day next week and what that translates into" when it comes to earnings power, Reitzes said in a Wednesday note to clients.

AMD's spending on research and development is "impacting its ability to deliver leverage to net income" in the near-term, Reitzes said. But if Su's conviction that the company can deliver on "tens of billions" in AI sales is right, he sees long-term earnings power topping $12.

The chip maker's record third-quarter performance and fourth-quarter guidance, which topped the Wall Street consensus view, represented "a clear step up in our growth trajectory as our expanding compute franchise and rapidly scaling data-center AI business drive significant revenue and earnings growth," AMD Chief Executive Lisa Su said in a statement following Tuesday's report.

The upside reflected in AMD's outlook "implies higher than expected revenues" for the company's server and personal computer central processing units, Melius' Reitzes said, adding that GPUs will likely be in line with Wall Street's expectations.

See more: AMD earnings are out. Here's why the stock is falling.

Bernstein's Stacy Rasgon said bearish investors will likely be focused on AMD's near-term outlook for its AI chips, which is "a bit lackluster relative to expectations," and the company's "substantially higher spending trends," which are offsetting higher sales. And while the company's client business has been showing strong upside, he said bears will be looking for signs of "pull-forward and inventory risks" there.

On the other hand, bulls should come away with a positive view of AMD's "improved core market dynamics" and a competitive landscape that is becoming more favorable, Rasgon said in a Wednesday note. The bulls "will probably be willing to look past higher spending levels, and overall will be waiting for the OpenAI ramp," Rasgon said, adding that investors are likely less worried about nearer-term AI trends with "a path of tens of billions of dollars" a year out.

"But for a stock that has risen 40%+ over the last three months," and given its multiple of 45 times earnings, "things may consolidate for a bit," Rasgon said. Wall Street will be waiting for the OpenAI deal next year, and to hear more from analyst day next week, he noted.

Wedbush's Matt Bryson said AMD's lack of transparency into the revenue split between its CPUs and GPUs "is something of a red herring," since its "valuation is predicated largely upon MI450" - its first series of AI accelerators that will launch with OpenAI - and the following generations of chips that are part of the partnership.

"We don't necessarily view one or two hundred million more or less in MI350 revenue as offering much insight into AMD's execution around MI450," Bryson said in a Wednesday note.

Therefore, Bryson said he sees AMD's stock being impacted more by "any color" the company provides on its future AI expectations at its analyst day next week than by its latest earnings results.

After falling 3.5% in after-hours trading Tuesday immediately following the earnings report, AMD's stock rose 2.5% on Wednesday.

-Britney Nguyen

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11-05-25 2116ET