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AMD (AMD) remains a top performer in the S&P 500 ($SPX), rallying over 234% in a single year. Further, sustained demand for its server CPUs and Instinct accelerators among hyperscalers and enterprise customers, along with a growing addressable market, signals solid growth ahead.
With demand remaining solid and AMD's earnings growth set to speed up, the stock has room to advance despite higher valuation metrics.
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AMD Poised to Outperform Its Growth Targets
AMD reported exceptionally strong second-quarter results, highlighting accelerating demand for its products and positioning the company to exceed its previously stated growth objectives.
Revenue rose 50% year-over-year to $11.5 billion, while earnings per share increased 82%, substantially faster than revenue. Gross margin reached 56%, improving by more than 200 basis points from a year earlier. The expansion reflected a stronger product mix and increasing contributions from the data center business.
Data center revenue reached a record $6.7 billion, more than twice the prior-year level and 16% higher sequentially. EPYC processor sales grew more than 70% year-over-year, supported by record enterprise demand and strong cloud adoption. Both shipments and average selling prices increased, helped by greater adoption of AMD's latest Zen 5 processors. Instinct revenue also more than doubled, driven by the continued rollout of the MI350 family across major AI labs, cloud platforms, startups, and sovereign AI projects.
AMD enters the second half with considerable momentum. Venice and MI455X are already in production, while initial Helios shipments are expected in Q3. Ryzen PRO processors are supporting further commercial market-share gains, and the embedded business is returning to strong annual growth.
AMD's next-gen product portfolio further strengthens its growth outlook. With demand for AI accelerators and server CPUs to remain solid, AMD's server revenue is expected to rise more than 80% year-over-year in the second half of 2026, and over 70% for full-year 2027. Overall, AMD expects data center revenue to more than double in 2027.
Looking further ahead, with the high-performance and AI computing market expected to grow at a solid pace and growing adoption of its products, AMD is poised to exceed its long-term targets outlined at its analyst day event. Revenue growth is expected to surpass the previous goal of more than 35% CAGR over the next three to five years, while annual EPS could significantly exceed the earlier $20 target within the same period.
AMD's Strong Earnings Growth Supports Its Premium Valuation
AMD's rally has pushed its valuation higher. However, the company's robust earnings growth justifies its elevated valuation multiple.
The stock trades at a forward price-to-earnings (P/E) of 74.2. While this represents a premium compared with many of its peers, including Nvidia (NVDA), the valuation appears more defensible when considered alongside AMD's expected earnings growth.
Analysts anticipate AMD's EPS to increase by about 96.9% in fiscal 2027. Expectations remain strong beyond that period, with EPS projected to climb another 109.2% in the subsequent fiscal year.
AMD's strong revenue momentum, improving profitability, and rising demand for its data center processors and AI accelerators create a solid platform for continued growth. As the company expands its EPYC server CPU and Instinct accelerator businesses, and introduces next-generation products, its earnings could maintain a very strong growth trajectory in the years ahead.
While AMD's forward price-to-earnings multiple remains elevated, the premium valuation is justified with the company continuing to generate robust earnings growth.
Overall, AMD has further upside potential. Its solid earnings base, growing adoption of AI technologies, and growth in the data center market are key catalysts for the stock.
Wall Street analysts currently maintain a "Strong Buy" consensus rating on AMD stock.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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