Why I'm Not Buying Into Wall Street's Bullish Stance on AMD Stock

Business Insider

a day ago

Advanced Micro Devices (AMD) posted a strong top-line beat in Q2 2025 and issued bullish Q3 guidance this week — and yet, the market quickly reversed its optimism, sending AMD stock down over 6% the next day. It would seem that, under the hood, especially in AMD's Data Center business, tangible results weren't as promising as the expectant headlines suggested. AMD's stock price action has been topsy-turvy to say the least, with price gaps appearing on AMD's chart as a result of swaying investor sentiment.
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Given the worrying drop-off in delivery, I remain Bearish on AMD stock, primarily due to growing risks tied to AI chip revenue, China export restrictions, and questions surrounding the timing and strength of the MI400 ramp.
On August 5, AMD reported Q2 EPS of $0.48, exactly matching analyst estimates. Revenue came in at $7.69 billion, beating the consensus estimate of $7.41 billion. However, the data center business—which includes AMD's all-important AI chip sales—delivered only 14% year-over-year growth, generating $3.2 billion. That may sound impressive, but it pales in comparison to Nvidia's (NVDA) staggering 73% growth in its data center segment reported in May.
CEO Lisa Su added more fuel to the sell-off fire when she admitted AI chip revenue had declined versus the prior year, blaming both U.S. export restrictions to China and a product transition to AMD's next-gen MI350 chips.
Despite AMD issuing Q3 revenue guidance of $8.7 billion (plus or minus $300 million), which came in above consensus estimates of $8.32 billion, the stock sold off. The guidance excluded any potential revenue from its MI308 shipments to China, pending U.S. government license approvals.
Investors are growing wary of the lack of visibility. Lisa Su said the timing of export license approvals remains uncertain.
Client & Gaming Leads AMD's Segments
On the bright side, AMD's Client and Gaming segment posted impressive numbers, with revenue up 23% sequentially and 69% year-over-year. The boost was driven by record CPU sales and a rebound in gaming console demand. However, since this segment operates at a lower gross margin, the upside doesn't fully translate into stronger profitability.
Gross margin fell to 43%, down from 53% a year ago, largely due to $800 million in charges tied to China-related inventory and adjustments. Even on a non-GAAP basis, AMD reported a 54% gross margin, which is still below Nvidia's levels. The report signals that AMD's pricing power is waning, with little near-term upside to margins.
Data Center Theme is One to Watch
AMD's Data Center segment remains its most promising growth driver, but Q3 GPU guidance fell short of expectations. Investors had been eyeing stronger pricing for the MI350/MI355 chips and a possible resumption of China-bound shipments—neither of which materialized. That disappointment has created a noticeable gap in AMD's AI narrative, which was already more cautious compared to Nvidia's, and has reignited uncertainty among investors.
While AMD continues to highlight AI as a key pillar of its long-term strategy, the absence of a near-term catalyst has made its current valuation harder to defend.
Is AMD a Buy, Hold, or Sell?
Amid current trade, AMD holds a Moderate Buy consensus rating based on 36 analyst reviews, including 25 Buys, 10 Holds, and one Sell rating obtained since May. AMD's average stock price target is $161.16, implying ~6% downside from current levels.
Interestingly, much of Wall Street sees this quarter as a 'transitional' one and remains upbeat. Just recently, J.P. Morgan raised its price target to $180 (from $120) while maintaining a Neutral rating. Meanwhile, Stifel lifted its target to $190 (from $161) while maintaining a Buy rating, citing 'AI computing potential' for its bullish stance.
Last but not least, Wells Fargo reiterated its Overweight rating and $185 target, while advising investors to buy the earnings dip. Even Cathie Wood's ARK fund stepped in, buying over $40 million worth of AMD stock the day after earnings, signaling bullish institutional sentiment for the stock.
According to my proprietary valuation model, including EV/EBIT multiples, P/E ratios, and 5-year DCFs, I calculate AMD's fair value at $154 per share, implying ~5.5% downside from the current price.
Too Many Unknowns for a Clean Bull Case
In my view, the bullish case for AMD is clouded by key unanswered questions, including when China's GPU export licenses will be approved, whether MI400 shipments will ramp fast enough to drive growth in 2026, and whether further U.S. policy changes could disrupt international sales again.
Given these uncertainties, I believe AMD's AI story is overstated in the short term. While long-term fundamentals remain solid, the stock seems priced for AI perfection that hasn't materialized yet.
The Final Verdict on AMD
Until the AI revenue picture becomes clearer and China uncertainties subside, I remain bearish. While AMD remains a formidable player in the semiconductor space, current market expectations appear too optimistic given the lack of clarity on core growth drivers. For now, I believe caution is warranted until more concrete signs of acceleration emerge.