Advanced Micro Devices' latest Q4 2025 earnings report surpassed market revenue expectations, yet the impressive figures failed to fully alleviate Wall Street's concerns. The core issue lies in the company's operational expenditures exceeding forecasts, which continues to limit the realization of profitability, shifting market attention to whether a critical breakthrough can be achieved with its rack-scale AI products in the latter half of the year.
According to analyses from several Wall Street investment banks, including Morgan Stanley and Goldman Sachs, AMD's Q4 revenue reached $10.3 billion, marking a 34% year-over-year increase and an 11% sequential growth, significantly surpassing the consensus expectation of $9.67 billion. However, the market perceives this performance as including approximately $390 million in one-time special sales revenue; excluding this factor, the actual revenue growth was only marginally above the upper end of the company's guidance.
The primary growth driver remained the Data Center segment, which recorded Q4 revenue of $5.38 billion, a 24% sequential increase. Notably, excluding the aforementioned one-time revenue, this growth rate would drop to approximately 15%. Within this segment, Server CPU revenue, fueled by AI demand, grew about 10% sequentially, reaching a record high, while Data Center GPU revenue surged approximately 40% quarter-over-quarter to $2.75 billion, largely driven by the ongoing ramp-up in production capacity for the new MI355X products.
Despite robust business performance, higher-than-expected operational expenditures emerged as a common concern in multiple institutional research reports, with the market worried this will continue to constrain improvements in operating leverage. Investors are now anticipating that the rack-scale AI products, whose volume ramp-up management has committed to for the second half of the year, will serve as the key catalyst for a substantial enhancement in profitability.
AMD's guidance for Q1 2026 indicates a revenue outlook that surpasses market consensus. The company anticipates quarterly revenue of approximately $9.8 billion, higher than the market's expectation of $9.4 billion, although this represents a sequential decline of about 5%. By business segment, the Data Center segment is expected to achieve sequential growth, with Server CPU revenue projected for double-digit growth even during the traditionally slower season, while Data Center GPU revenue, excluding specific factors, is forecast to be flat to slightly up sequentially.
However, the issue that captured market attention was cost control. The company's guided operational expenditures reached $3.05 billion, significantly higher than the market's expectation of $2.94 billion. This marks multiple consecutive quarters of operational expenses exceeding expectations. Goldman Sachs analyst James Schneider noted in his report that AMD's operational expenses last quarter had already hit $3.0 billion, far exceeding the midpoint of the previous guidance of $2.82 billion, emphasizing the company's continued increased investments to support its strategic initiatives in AI systems and software, with a significant sequential increase expected in H2 2026.
Concurrently, while the company's gross margin guidance was slightly above expectations, the 55% figure included approximately $100 million in gains from the sale of previously reserved inventory, which somewhat diminished the quality of this metric.
Despite facing short-term operational efficiency challenges, AMD reaffirmed to the market the timeline and expectations for its next-generation rack-scale AI products based on the MI455 series GPUs. The company confirmed that this product remains on schedule to begin customer shipments in Q3 2026, with a larger revenue ramp anticipated in Q4, thereby refuting recent market speculation about potential delays.
Management further disclosed key customer deployment progress, including OpenAI's expected deployment of a 1 Gigawatt (GW) AI computing cluster based on the MI-4XX architecture starting in the second half of this year, while Oracle's related deployments are confirmed to commence in 2026 and beyond. Based on this, the company maintains high confidence in achieving its target of "tens of billions of dollars" in Data Center GPU revenue by 2027 and anticipates that the Data Center business will achieve an annual growth rate exceeding 60% over the next three to five years, driving a company-wide compound annual growth rate of approximately 35%.
Morgan Stanley analyst Joseph Moore pointed out that despite short-term one-time factor disruptions, Server CPU growth during the traditionally slow season provides a positive signal for full-year performance. He also emphasized that AMD has achieved majority market share positions in several major cloud computing markets, a structural advantage highly beneficial for its future competitive landscape.
Performance across other business units was mixed, with cost pressures emerging in the PC segment. The Client segment revenue for Q4 was $3.1 billion, up 13% sequentially, primarily due to an improved high-end product mix and market share gains. However, management expressed a cautious outlook for this segment in 2026, anticipating pressure from rising costs of key components in the PC market, potentially leading to H2 demand falling below traditional seasonal levels. J.P. Morgan's global research team predicts global PC shipments could decline by approximately 9% year-over-year in 2026.
The Gaming segment revenue was $843 million in Q4, a sharp 35% sequential decline, mainly because Sony and Microsoft had completed their concentrated inventory build-up for console semi-custom chips in Q3 to meet holiday season demand, leading to a natural decline this quarter. With next-generation flagship consoles not expected until 2027, this segment is projected to struggle to achieve growth in 2026.
The Embedded segment showed positive signs of recovery in Q4, with revenue reaching $950 million, an 11% sequential increase, and achieving its first year-over-year growth since June 2023. Management expects this segment to grow throughout 2026, primarily driven by largely normalized channel inventory and gradually recovering demand across various end markets like industrial, automotive, and communications.
Faced with AMD's latest results and outlook, several major investment banks maintained Neutral ratings. The consensus view indicates that while AMD possesses growth potential, its current valuation already reflects this, and short-term operational efficiency remains a core constraint. Deutsche Bank analyst Ross Seymore believes the company's solid execution and long-term growth prospects are already fully priced into the current stock price.
J.P. Morgan analyst Harlan Sur emphasized that until AMD can demonstrate clear improvement in operating leverage in H2 2026, expense issues will continue to weigh on the stock price. Goldman Sachs has lowered its 2026-2028 EPS estimates by an average of 4%, primarily due to revenue growth expectations being offset by higher operational expenses; Morgan Stanley also significantly raised its full-year operational expenditure forecast.
The investment bank consensus is that AMD holds a solid position in the Server CPU and Client markets, with considerable long-term potential in the Data Center GPU business. However, execution risks associated with its upcoming rack-scale AI products, potential customer concentration issues, and the visible lack of operating leverage in the near term remain key market concerns. Until new products like the MI450/Helios prove their market acceptance and drive profitability improvements, the company's stock price may struggle to achieve significant breakthroughs.
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