Advanced Micro Devices delivered a quarterly earnings report that exceeded expectations, accompanied by a strong forward outlook. However, the focus of Wall Street's debate is now shifting from "whether demand exists" to "whether supply can keep pace." This narrative pivot marks a new chapter in the company's AI investment story.
In the second quarter of 2026, AMD reported revenue of $11.54 billion, a 50% year-over-year increase, surpassing the consensus estimate of $11.31 billion. The data center segment was the primary growth driver, with a 107% year-over-year increase, while GPU revenue was approximately $2.8 billion, according to JPMorgan estimates. Management then provided its most definitive quantitative commitment to date for 2027: data center revenue is expected to more than double year-over-year, with server CPU revenue growth exceeding 70%—a statement that significantly exceeds previous expectations over the past few months.
However, the strong performance and optimistic outlook have not created a consensus on Wall Street. According to analyst reports from JPMorgan, Goldman Sachs, and HSBC, management's 2027 guidance is above sell-side expectations but fails to cover the most aggressive scenarios among buyers. Key sources of near-term uncertainty include the moderate margin guidance and execution risks related to the MI450 ramp-up. At the current stock price of $518.58, ratings from major banks are sharply divided: Goldman Sachs maintains a Buy rating with a price target of $640; JPMorgan and HSBC hold Neutral and Hold ratings, respectively, with price targets of $550 and $500.
Execution Risk Remains as MI450 Rack-Scale Products Begin Shipping
AMD's flagship AI product, the Helios/MI450, began initial shipments at the end of the third quarter, with a larger-scale production ramp expected in the fourth quarter and further acceleration in the first half of 2027. Management noted that customer pull-in is "ahead of initial forecasts," and the partner list has expanded beyond the three core anchor clients—OpenAI, Meta, and Anthropic. Customer engagement for the MI500 has also fully commenced. However, several institutions remain cautious about the execution of this first rack-scale product. JPMorgan pointed out that the margin dilution effect from the MI450 mix will gradually emerge as shipments increase from the fourth quarter through the first half of 2027. The bank also noted that the dilution mechanism from OpenAI and Meta warrants will begin to have a compounding effect in the second half of 2027 and must be continuously tracked in forecasting models. In terms of margin balancing factors, the positive contribution from server CPUs and the return of the embedded business to double-digit year-over-year growth—for the first time in nearly three years—will partially offset the margin pressure from the GPU mix. The gross margin guidance for the third quarter is approximately 56%, slightly below the sell-side estimate of 56.2%. Management also expressed caution regarding the PC market in the fourth quarter, with gaming revenue expected to remain under pressure throughout 2026 and into 2027.
Supply Constraints Become the Biggest Variable, AMD Increases Equipment Leasing Investments
As demand visibility improves, supply-side constraints are becoming the key variable determining whether AMD can meet its guidance. Capital expenditures surged to $808 million in the second quarter, far above the $389 million in the first quarter. Management explicitly stated that the incremental CapEx is specifically allocated to leasing CoWoS advanced packaging equipment at outsourced semiconductor assembly and test (OSAT) providers to secure production capacity for the Venice CPU. HSBC's research report conducted a detailed scenario analysis on this, clearly identifying supply as the primary upside and downside catalyst for valuation. HSBC estimates that to achieve management's 2027 target of over 70% growth in server CPUs and a doubling of overall data center revenue, CoWoS-L capacity demand would need to be 35% and 12% higher than the base case, respectively. Because AMD has chosen to lease equipment to second-tier packaging providers like SPIL and PTI, rather than first-tier suppliers like TSMC, HSBC believes this means first-tier suppliers have almost no room for upward capacity expansion before 2027, while the risk of lower yields cannot be ignored. The bank also summarized the key monitoring points for upside and downside risks into three categories: advanced packaging capacity, HBM memory supply, and substrate supply. JPMorgan also noted the signal from the surge in second-quarter capital expenditures, viewing it as a clear indication of capacity preparation for the Venice production ramp.
Wall Street Disagreement Deepens, Valuation Already Priced in Multi-Year Opportunity
Following this earnings release, the ratings and price targets from three major institutions have diverged significantly, reflecting the tug-of-war between "growth expectations" and "execution risks." JPMorgan raised its price target from $385 (for December 2026) to $550 (for December 2027), based on a 32x P/E multiple applied to a second-half 2027 annualized EPS of $17.20, maintaining a Neutral rating. The bank lowered its 2026 EPS estimate by about 6% to $7.25, while establishing a full-year 2027 forecast of $14.38. It noted that "the stock price has already largely priced in a multi-year opportunity" and that execution risks from the first rack-scale product ramp remain significant throughout fiscal 2027. Goldman Sachs maintains a Buy rating with a $640 price target, based on a 32x P/E multiple applied to AMD's "normalized" EPS of $20. The bank raised its 2026-2028 EPS estimates by an average of about 13%, believing AMD is fully capable of achieving data center revenue exceeding $40 billion in 2027. It views strong server CPU growth as an effective buffer against margin pressure during the GPU production ramp. HSBC maintains a Hold rating and a $500 price target, based on a 36x P/E multiple applied to a 2027 EPS estimate of $13.78. It believes the current stock price implies about 4% downside, with supply-side capacity set to dominate the direction of valuation. On the financial front, JPMorgan forecasts AMD revenue of $50.5 billion in 2026, expanding to $84 billion in 2027, a year-over-year growth rate of about 66%. EPS estimates are $7.25 and $14.38, respectively, while non-GAAP operating margins are expected to improve from about 28% in 2026 to about 35% in 2027. The Q3 revenue guidance midpoint is $13 billion, above the market's prior estimate of $12.5 billion.
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