Wall Street reviews AMD’s earnings report: Operating expenses limit profitability, market focus shifts to rack-scale AI in the second half of the year.

Wall Street reviews AMD’s earnings report: Operating expenses limit profitability, market focus shifts to rack-scale AI in the second half of the year.

Although AMD’s newly released Q4 2025 financial report exceeded market expectations in terms of revenue, the impressive figures have not entirely dispelled Wall Street’s doubts. The core issue is that the company’s operating expenses surpassed expectations, continuously restricting the release of profitability. The market is now focusing on whether rack-scale AI products, set for the second half, can achieve a breakthrough.

According to analyses from Morgan Stanley, Goldman Sachs, and other Wall Street investment banks, AMD achieved Q4 revenue of $10.3 billion, up 34% year-on-year and 11% quarter-on-quarter, significantly beating the consensus forecast of $9.67 billion. However, the market believes this result includes about $390 million in one-off special sales revenue, meaning that after excluding this factor, actual revenue growth is only slightly above the upper end of AMD’s guidance.

The core driver of the performance growth remains the data center business, which achieved Q4 revenue of $5.38 billion, quarter-on-quarter growth of 24%. Notably, if the aforementioned one-off revenue is excluded, q/q growth drops to about 15%. Within this, server CPUs, boosted by AI demand, grew about 10% q/q, hitting a record high, while data center GPU revenue surged about 40% q/q to $2.75 billion, mainly aided by sustained ramp-up of the new MI355X product line.

Despite strong business performance, the higher-than-expected operating expenses have become a common focus in institutional research reports, with concerns that this will continue to limit operational leverage improvement. Currently, investors are looking forward to rack-scale AI products, which management has promised will ramp up in the second half, as a key catalyst for a substantial profitability uplift.

Q1 Guidance Beats Expectations, But Operating Expenses Cause Concern

AMD’s guidance for Q1 2026 indicates revenue outlook better than market consensus. The company projects quarterly revenue of about $9.8 billion, higher than the market expectation of $9.4 billion, although this is about 5% lower quarter-on-quarter. By segment, data center business is expected to grow q/q, with server CPU revenue likely to achieve double-digit growth during the traditional slow season, and GPU revenue expected to be flat to slightly up q/q after adjusting for specific factors.

However, the issue of cost control has drawn market attention. The company’s guidance for operating expenses is $3.05 billion, significantly higher than the market estimate of $2.94 billion. This marks several consecutive quarters of operating expenses exceeding expectations. Goldman Sachs analyst James Schneider noted in his report that AMD’s previous quarter operating expenses hit $3.0 billion, well above the prior midpoint guidance of $2.82 billion. He emphasized the company’s continued increased investment in AI systems and software, expecting a notable quarter-on-quarter rise in operating expenses in the second half of 2026.

Meanwhile, the company’s gross margin guidance, while slightly above expectations, includes about $100 million in previously reserved inventory sales, which somewhat erodes its strength as an indicator.

MI455 Series Progressing on Schedule, Long-Term Growth Targets Unchanged

Despite short-term operational efficiency challenges, AMD has once again clarified to the market its next-generation rack-scale AI products based on the MI455 GPU series timing and expectations. The company confirmed that the product will begin customer deliveries in Q3 2026 as planned, and will see a significant ramp in revenue in Q4, refuting recent market rumors about possible delays.

Management further disclosed progress with key customers, including OpenAI, which is expected to begin deploying MI-4XX architecture AI clusters with a total capacity of 1 gigawatt (GW) in the second half of this year, while Oracle’s deployment will start gradually from 2026 onward. Based on these, the company remains highly confident in achieving data center GPU revenue of “several billion dollars” by 2027, and expects the data center business annual growth rate to exceed 60% over the next three to five years, boosting overall company revenue CAGR to about 35%.

Morgan Stanley analyst Joseph Moore pointed out that even with short-term one-off factors, server CPUs achieved growth during the traditional off-season, a positive sign for full year performance. He also emphasized that AMD now holds majority share positions in key cloud computing markets, a structural advantage for its future competitiveness.

Other Businesses Mixed, PC Cost Pressures Emerge

Client business recorded $3.1 billion revenue in Q4, up 13% q/q, mainly benefiting from improved high-end product mix and increased market share. However, management remains cautious about prospects for this segment in 2026, predicting the PC market will face rising costs for key components, which may cause demand in the second half to fall below typical seasonal levels. J.P. Morgan's global research team forecasts global PC shipments may decline about 9% year-on-year in 2026.

Gaming business Q4 revenue came in at $843 million, down sharply by 35% q/q, mainly because Sony and Microsoft finished stocking semi-custom console chips for the holiday season in Q3, causing related revenue to naturally fall this quarter. As next-generation flagship gaming consoles are expected in 2027, this segment is unlikely to grow in 2026.

The embedded business showed positive signs of recovery in Q4, with revenue reaching $950 million, up 11% q/q, and achieving its first year-on-year growth since June 2023. Management expects growth for this business throughout 2026, mainly driven by the fact that channel inventory has been largely cleared and demand in industrial, automotive, and communications end markets is gradually picking up.

Investment Banks Remain Cautious, Valuation Fully Reflects Growth

Facing AMD’s latest results and outlook, several major investment banks have maintained neutral ratings. These institutions acknowledge AMD’s growth potential, but believe this is already reflected in current valuation, and short-term operational efficiency is the main constraint. Deutsche Bank analyst Ross Seymore believes the company’s solid execution and long-term growth outlook are already well priced into shares.

J.P. Morgan analyst Harlan Sur emphasizes that until AMD can clearly demonstrate improved operational leverage in the second half of 2026, expense issues will continue pressing on the share price. Goldman Sachs has lowered its 2026-2028 average EPS estimates by 4%, mainly because higher operating expenses offset expected revenue growth; Morgan Stanley also raised its full-year operating expense forecast significantly.

Consensus among investment banks is that AMD’s positions in server CPUs and client markets are solid, and its data center GPU business has significant long-term potential. However, there are still key concerns about the upcoming rack-scale AI products’ execution risk, potential customer concentration, and short-term visible lack of operational leverage. Until new products such as MI450/Helios can prove market acceptance and drive profitability improvement, the company’s stock price is unlikely to make a major breakout.

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