Advanced Micro Devices (ASX: AMD) reported fourth-quarter revenue of $10.3 billion, up 34% year over year, up 11% sequentially, and ahead of guidance. AMD’s first-quarter revenue forecast of $9.8 billion is ahead of FactSet consensus estimates and would represent 32% growth year over year.

Why it matters: AMD received a revenue boost of $390 million from previously-banned MI308 chip sales into China. Still, AMD’s core data center chip business fared well with sequential growth in artificial intelligence accelerators (GPUs) and strong demand for x86 server processors (CPUs) for traditional workloads.

  • AMD reiterated its long-term financial targets, first provided at its November 2025 analyst day, calling for a 35% revenue compound annual growth rate over the next three to five years. Within, AMD still expects a 60% CAGR in data center revenue, aiming for $100 billion by 2030 versus $16.6 billion in 2025.

The bottom line: We maintain our $270 fair value estimate for narrow-moat AMD. Shares sold off about 7% after hours, and like the selloff in Intel’s shares after earnings, our best guess is that investors may have been too optimistic about the revenue growth seen in server CPUs.

  • Medium-term concerns about OpenAI’s expansion are still likely an overhang on AMD’s stock, but it appears that the hard work is being done to bring AMD’s MI450 products to OpenAI this year, starting in the third quarter, with meaningful revenue arriving in the fourth quarter.

Coming up: By end market, on a sequential basis, AMD expects first-quarter revenue growth in data center but declines across client (PCs), gaming, and embedded, the latter three of which typically face seasonal first-quarter declines.

  • AMD hinted that server CPU revenue will grow sequentially, which is stronger than normal seasonal patterns. GPU revenue should also rise sequentially, but we suspect this growth will be moderate, given the one-time boost in the previous quarter from MI308 revenue sold into China.

Business strategy and outlook

Advanced Micro Devices has significant digital semiconductor expertise and is well positioned to prosper from favorable trends in data centers and artificial intelligence. We consider AMD to be one of two notable firms in graphics processing units, which are especially well suited for AI. The company may play second fiddle to Nvidia in AI GPUs, but its GPU expertise should become increasingly valuable, and lucrative, in the years ahead.

We think AMD’s data center business should boom over the next few years. Its server CPUs should be in high demand, as should its GPUs suited for AI workloads. AMD pegs the total addressable market for AI accelerators, such as GPUs, at higher than $500 billion by 2028. While we foresee Nvidia capturing the bulk of this value over the next several years, we think that all AI vendors and customers will seek alternatives to keep Nvidia’s dominance at bay, and AMD might be the best positioned to emerge as a second source in AI. AMD’s partnership with OpenAI should validate AMD’s emergence as an AI product leader, in our view.

Historically, AMD’s primary products include processors and GPUs tailored to PCs, game consoles, and servers. In our view, AMD’s PC and server success stems from the rare x86 architecture license that it possesses from Intel, which allows AMD and Intel to build x86 CPUs for Microsoft Windows PCs. We view it as a heavy lift for Windows to rewrite its x86 software to work with other processors, but Apple made this move in recent years to support its internal ARM-based processors. ARM will likely gain share in the PC market, but we still expect x86-based chips from AMD and Intel to retain leadership in the Windows PC market for quite some time.

AMD has benefited from its outsourced manufacturing model, as its tight relationship with industry leader Taiwan Semiconductor enabled AMD to grab a technological lead as its rival, Intel, stumbled with its internal manufacturing roadmap. We anticipate that AMD will continue to gain market share over the next few years as Intel strives to turn it around, but AMD’s gains could last longer if Intel were to stumble further.

Bulls say

  • AI offers a massive opportunity to GPU makers, and while AMD lags industry leader Nvidia, we see plenty of room in the AI market for AMD.
  • AMD has gained market share in the PC CPU market as Intel’s manufacturing prowess has hit several road bumps in recent years.
  • AMD’s partnership with chip manufacturing leader TSMC, plus its adoption of a chiplet manufacturing strategy, has allowed the company to come to market with more formidable products and greater flexibility to bring new products to market quickly.

Bears say

  • AMD will need to improve its software capabilities to make a dent in Nvidia’s AI dominance, as Nvidia is strong in not only GPUs but associated AI software tools.
  • Despite AMD’s recent share gains, Intel remains the industry leader in PC CPUs and might recapture most of the market if it can deliver industry-leading manufacturing capabilities once again.
  • AMD’s gaming semicustom chip business is beholden to the design cycles and launches of new gaming consoles, and it might be a couple of more years until next-generation consoles arrive.

Get Morningstar insights in your inbox

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.