UBS: AMD — Moving Parts Still Hinder Major EPS Upgrades, but the Core Story Is Improving
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UBS maintains a Buy rating on Advanced Micro Devices but lowers the target price from $330 to $310 due to ongoing valuation compression among AI peers like Nvidia and Broadcom. AMD reported December-quarter revenue of $10.3 billion, exceeding both the guidance high-end of $9.9 billion and market expectations. However, the beat was primarily driven by $390 million in MI308X license revenue; excluding this, data center performance fell short by approximately $200 million. Non-GAAP EPS reached $1.53, beating the UBS estimate of $1.37 and the market consensus of $1.32.
Management guided to mid-30% full-year growth for 2026. UBS highlights that server CPUs, expected to grow roughly 45% year-over-year, and the mass production of the MI355X in Q4 are critical variables. The firm projects calendar 2027 EPS exceeding $11 and calendar 2028 EPS surpassing $15, levels sufficient to drive shares higher despite near-term volatility.
Gross margin came in at 57%, though 250 basis points of this improvement stemmed from the MI308X inventory release. The March-quarter revenue guide of $9.8 billion at the midpoint missed the UBS estimate of $9.9 billion but topped market consensus. Gaming revenue is expected to decline significantly by a mid-double-digit percentage in 2026. The embedded segment is recovering steadily, while free cash flow reached $2.1 billion. The revised $310 target price is based on 28 times the calendar 2027 EPS estimate of $11.19.