What They Do
AMD designs and manufactures high-performance semiconductors that power everything from data centers to gaming PCs. They compete directly with Intel in CPUs and NVIDIA in AI/graphics chips, selling to hyperscale cloud providers, enterprise customers, and consumer device manufacturers. The company makes money by designing cutting-edge processors and outsourcing manufacturing to foundries like TSMC.
Investment Thesis
**AI goldmine**: Data center revenue hit record $5.4B (+39% YoY) driven by MI350 GPU deployments, with management targeting "tens of billions" in AI revenue by 2027**CPU market share gains**: Fifth-gen EPYC Turin processors now represent >50% of server revenue, demonstrating continued share capture from Intel in the lucrative data center market**Exceptional execution**: Four consecutive quarters of revenue beats (3.7%-6.2%) with record free cash flow of $2.1B in Q4, nearly doubling year-over-yearKey Risks
**China revenue cliff**: $390M in Q4 MI308 sales to China won't repeat due to export restrictions, creating a significant headwind**NVIDIA's AI dominance**: Despite progress, AMD remains a distant second in AI chips where NVIDIA commands 80%+ market share with superior software ecosystemGrowth Story
AMD is riding a "multiyear demand super cycle" for AI and high-performance computing, with revenue growing 34% to a record $34.6B in 2025. Management expects >35% revenue CAGR over the next 3-5 years, driven by data center growth of >60% annually. The 2027 revenue estimate of $67.1B implies continued explosive growth as AI deployments accelerate.
Profitability Profile
Gross margins improved to 57% in Q4 (55% normalized), demonstrating strong pricing power and favorable product mix shifts toward higher-margin AI chips. Operating margins reached 28% with record $2.9B operating income, while free cash flow generation nearly doubled to $2.1B, showing excellent operational leverage as the business scales.
Competitive Position
AMD has successfully positioned itself as the primary alternative to both Intel (CPUs) and NVIDIA (AI chips), benefiting from customers' desire to diversify suppliers. Their EPYC server processors have gained significant market share through superior performance-per-dollar, while their MI-series AI chips offer a credible alternative to NVIDIA's dominant H100/H200 GPUs, though software ecosystem remains a gap.
Recent Momentum
Q4 2025 delivered across all metrics with record $10.3B revenue (+34% YoY) beating estimates by 6.2%, driven by strength in both AI GPUs and traditional server CPUs. The company demonstrated strong execution with four straight quarters of beats and raised confidence in long-term targets, though near-term China restrictions create some uncertainty.
What Wall Street Thinks
Analysts are increasingly bullish on AMD's AI opportunity, with 2027 EPS estimates of $10.92 implying 61% growth from 2026. The consensus sees AMD as a key beneficiary of AI infrastructure spending and continued Intel share losses, though debates remain about the pace of NVIDIA displacement and execution on ambitious growth targets.
The Bottom Line
AMD is successfully executing a two-pronged strategy of taking CPU share from Intel while building a credible AI chip alternative to NVIDIA, positioning it as a prime beneficiary of the AI infrastructure boom with >35% revenue growth targeted through 2027.
