AMD is Pursuing Product Line Expansion: Will Margins Sustain?
Advanced Micro Devices AMD is benefiting from sustained gross margin expansion, driven by a richer mix of high-end Ryzen processors within its client segment and a higher percentage of data center product sales, leading to expanded gross margins for the fifth consecutive quarter. In the first quarter of 2025, Non-GAAP gross margin expanded 140 basis points (bps) on a year-over-year basis to 53.7%.
Strong demand for high-end Ryzen CPUs in both gaming and commercial PCs is contributing to a favorable product mix that supports margin expansion. The data center segment, which includes EPYC CPUs and Instinct GPUs, continues to deliver strong revenue growth and higher margins, driven by increased adoption by hyperscalers and enterprise customers.
AMD's latest Ryzen CPUs, particularly those based on the Zen 5 architecture, have seen strong demand, especially for gaming and high-performance desktops and laptops. The launch of new products, like the Ryzen 9 9950 X3D, helped set sellout records and boosted the client segment.
The sales of higher-end products, including Ryzen processors for both desktop and mobile, led to higher average selling prices, which continue to positively impact gross margins.
AMD expects gross margins to remain strong as demand for its high-performance products continues to grow. For the second quarter of 2025, AMD has guided a gross margin of approximately 54%, excluding an $800 million inventory-related charge tied to the MI308 export controls.
Advanced Micro Devices Face Stiff Competition
AMD faces intense competition from NVIDIA NVDA and Intel Corporation INTC in the data center and client segments. While both NVIDIA and Intel Corporation have recently seen declines in gross margin, AMD continues to expand its margin through a favorable product mix and strong demand for high-end offerings.
NVIDIA's gross margins declined in the first quarter of fiscal 2026, with non-GAAP gross margin slipping 12.5 percentage points sequentially to 61%. This decline was primarily due to a $4.5 billion charge related to H20 inventory and purchase commitments that became unsellable following the new U.S. export restrictions on H20 chip shipments to China.
Intel Corporation's non-GAAP gross margin declined to 39.2% from 45.1% a year ago in the first quarter of 2025. Margins were significantly impacted by impairment charges and restructuring costs associated with a structural and operational realignment across the company.
AMD's Share Price Performance, Valuation and Estimates
Advanced Micro Device shares have gained 19% year to date, outperforming the broader Zacks Computer & Technology sector's return of 6.1%.
AMD Stock Performance
AMD stock is trading at a premium, with a forward 12-month Price/Sales of 6.78X compared with the industry's 3.87X. AMD has a Value Score of F.
AMD Valuation
The Zacks Consensus Estimate for second-quarter 2025 earnings is currently pegged at 54 cents per share, implying an 8.4% decline over the past 30 days. This indicates a 21.74% decrease year over year.
The consensus mark for 2025 earnings is pegged at $3.92 per share, which has declined 2.4% over the past 30 days, suggesting 18.43% year-over-year growth.
AMD currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
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