AMD FY25 Outlook: In the race, but not in the lead

Advanced Micro Devices (AMD) presents a compelling investment opportunity, primarily driven by its strategic pivot towards high-growth, high-margin Data Centre and Client segments, particularly fuelled by the burgeoning Artificial Intelligence (AI) market. The company's robust product roadmap, significant market share gains in CPUs, and aggressive pursuit of the AI accelerator market position it for sustained long-term growth, despite facing intense competition and geopolitical headwinds.

AMD concluded 2024 with record annual revenue and strong earnings growth, successfully carrying this momentum into Q1 2025 with notable year-over-year revenue expansion. The Data Centre segment has emerged as the primary growth engine, nearly doubling its revenue in 2024 and continuing its strong trajectory into 2025. AMD is actively investing in its cutting-edge AI hardware (Instinct MI series) and enhancing its open software ecosystem (ROCm). 

Furthermore, the company is forging critical strategic partnerships and strengthening its manufacturing resilience through collaborations with key foundry partners like TSMC. These integrated initiatives are designed to capture a substantial and growing share of the rapidly expanding AI and high-performance computing (HPC) markets.

The following table summarises AMD's recent financial performance.

Table 1: AMD’s 1Q25 earnings summary 

	1Q25	Y/Y Growth (%)
Revenue	7.4b	36%
- Data centre	3.7b	57%
- Client	2.3b	28%
- Gaming	0.6b	-30%
- Embedded	0.8b	-3%
Gross margin	54%	Flat
Adjusted EPS	0.96	55%

Source: AMD, iFAST Compilation, Data as of 19 May 2025.

The momentum from FY24 continued into the first quarter of 2025. Non-GAAP revenue reached USD 7.4 billion, demonstrating strong 36% YoY growth. However, this represented a marginal 3% q/q gain from Q4 2024, a pattern commonly observed following the holiday season. The gross margin was 54%, flat y/y and adjusted EPS at USD 0.96.

The figure below illustrates the business segments of AMD and a brief description of each business segment. 

Figure 1: AMD’s business segments

Source: AMD, iFAST Compilation, Data as of 19 May 2025. 

EPYC and Instinct series boosted the Data Centre sales 

Figure 2: AMD's Data Centre Segment Q1 25

Source: AMD, iFAST Compilation, Data as of 19 May 2025. 

The Data Centre segment stands as AMD's strongest performer and the primary catalyst for its overall growth. For the full fiscal year 2024, it posted a record USD 12.6 billion in revenue, a substantial 94% increase compared to the prior year, underscoring its rapid expansion. The strong performance continued into Q1 2025, with revenue reaching USD 3.7 billion, up 57% y/y.

This robust growth is primarily fuelled by strong shipments of AMD Instinct GPUs, particularly the MI300 series, and accelerated sales of AMD EPYC CPUs. Combined sales of EPYC and Instinct products nearly doubled y/y in 2024, collectively contributing approximately 50% of AMD's total annual revenue. AMD achieved record server processor market share in 2024, driven by increasing adoption of AMD EPYC processors across cloud, enterprise, and supercomputing customers. Notably, AMD's EPYC server chips have begun to outsell Intel's Xeon line in terms of revenue, capturing a significant 35.5% of the total server market revenue.

AMD is aggressively expanding its presence and competitiveness in the burgeoning AI chip market with a clear and ambitious roadmap for its Instinct series. For instance, AMD announced a partnership with Oracle to deploy a large-scale cluster powered by MI355X accelerators and 5th Gen EPYC Processor. Apart from that, Azure and Siemens are partners with AMD in an automotive solution utilising the EPYC CPUs and Radeon GPUs. According to AMD, next-gen MI350 series Instinct GPUs are on track to begin accelerated production by mid-2025, making it the first client of TSMC’s N2 production line. 

AMD continues to maintain its presence in client and gaming segment 

Figure 3: AMD's Client and Gaming Segment Q1 25

Source: AMD, iFAST Compilation, Data as of 19 May 2025. 

In Q1 2025, client revenue rose to $2.3 billion, up 28% y/y, driven primarily by strong demand for the latest Zen 5 AMD Ryzen processors and a richer product mix. On the other hand, the gaming segment declined to $0.6 billion, down 30% y/y, due to a decrease in semi-custom revenue, which tends to be cyclical. 

AMD has gained client processor market share due to the cutting-edge performance, efficiency, and AI capabilities of its AMD Ryzen processors. AMD's resurgence, largely driven by its Zen architecture and Ryzen/EPYC processor lines, has fundamentally challenged Intel's long-standing dominance in the CPU market. In early 2025, AMD made aggressive strides across desktop, server, and mobile segments. While Intel still commands the overall x86 market in terms of units, AMD is winning key battles in revenue share. 

While Intel has maintained a stronger market presence in premium segments and has recently adopted aggressive pricing strategies with its Raptor Lake processors, AMD's Ryzen 9000-series CPUs, particularly the X3D models, remain highly popular among enthusiasts for their gaming performance and overall balance. 

Mixed market demand in Embedded segment 

Figure 4: AMD's Embedded Segment Q1 25

Source: AMD, iFAST Compilation, Data as of 19 May 2025. 

Q1 2025 revenue for this segment was USD 823 million, down 3% year-over-year, with end-market demand remaining mixed. Despite the declines, AMD is expanding its offerings in this space, with new AMD EPYC Embedded 9005 Series processors delivering server-grade performance and energy efficiency for networking, storage, and industrial edge markets. Additionally, AMD Versal AI Edge XQRVE2302 adaptive SoCs are now available, bringing AI inferencing capabilities to space applications in a small form factor.

Positive guidance with strong demand, despite one-off adjustment 

AMD projects revenue for the second quarter of 2025 to be approximately USD 7.1-7.7 billion. 
While the initial non-GAAP gross margin guidance of 43% for 2Q25 might appear optically weak compared to the 54% achieved in Q1 2025, a detailed explanation clarifies the situation. 

The guidance explicitly states that this figure includes an approximate USD 800 million charge for inventory and related reserves, directly attributable to new export controls. This charge is a quantifiable financial impact of the US export controls on advanced chip sales to China, representing a one-time or short-term inventory adjustment for products that can no longer be sold to restricted markets. Excluding this specific charge, the non-GAAP gross margin would still be approximately 54%, indicating that the company's core business profitability remains robust. 

This demonstrates AMD's ability to effectively manage and absorb significant external shocks without a fundamental decline in its business model, underscoring strong underlying operational efficiency and continued pricing power in its unrestricted markets.

Table 2: AMD’s 2Q25 guidance

	2Q25 Guidance
Revenue (USD)	7.1-7.7 b
Gross margin	43% including 800m inventory charge 54% excluding this one-time charge
Operating cost (USD)	2.3b
interest cost (USD)	5m
Tax	13%
Diluted share count	1.64b shares

Source: Company report, iFAST Compilation, Data as of 19 May 2025.

Strategic growth driver of AMD remains appealing 

AMD's investment thesis is fundamentally anchored in its strategic evolution and strong execution within the high-growth Data Centre and Client segments, particularly driven by the burgeoning Artificial Intelligence market. 

AMD's product mix transformation is evident in the Data Centre segment's emergence as the primary growth engine, fuelled by strong demand for AMD Instinct GPUs (MI300/350 series) and AMD EPYC CPUs. The aggressive AI accelerator roadmap, with the MI350 and MI400 series on the horizon, positions AMD as a serious contender in the AI chip market, offering competitive memory capacity and performance. The company's strategic partnerships, such as the $10 billion collaboration with HUMAIN and the alliance with Red Hat, are crucial for scaling AI infrastructure and expanding ecosystem support.

A core technological advantage for AMD is its chiplet-based design philosophy. Rather than creating a single monolithic die, AMD connects multiple smaller chips (chiplets) together, allowing for exceptional flexibility and performance scaling. This modular approach offers numerous benefits: improved manufacturing yield (smaller dies are less prone to defects), cost efficiency (reusing existing chiplets), enhanced performance (optimising individual components), and greater scalability (modular upgrades and future-proofing). Each chiplet can be optimised for its specific function, leading to better overall system performance, facilitated by high-speed interconnects like AMD's Infinity Fabric™ technology, which ensures efficient data transfer. This design also enables dynamic power management and chiplet-level security, contributing to more efficient and secure systems. This strategic approach is particularly valuable in data centres, high-performance computing, and AI, where customised solutions and rapid innovation are paramount.

Furthermore, AMD's reliance on TSMC for advanced manufacturing nodes and its innovative chiplet-based design provide significant advantages in terms of performance, cost efficiency, and supply chain flexibility. The new Arizona facility offers geographic and strategic diversification, supporting advanced chip nodes for future AMD product lines, including the next-generation AMD EPYC™ CPU, codenamed “Venice,” which is the first HPC product to be brought up on TSMC's 2nm process technology.

Having said that, acknowledging Nvidia’s stronghold in AI data-centre GPU and Intel’s presence PC CPUs, the semiconductor market is evolving rapidly, and it is in the midst of a transition from AI infrastructure to AI applications. We believe AMD’s expanding role in the AI value chain—moving from infrastructure to enabling AI applications—positions it well for long-term growth. 

Strategic moves into high-performance computing (HPC) and edge AI, through products like the next-gen EPYC “Venice” on TSMC’s 2nm node, could be game changers, opening new markets beyond traditional data centres, while the long-term growth driver of AI-powered gadgets might serve as an opportunity. 

While Nvidia and Intel continue to lead in their respective fields, AMD’s execution, ecosystem momentum, and strengthening customer relationships position it as a formidable contender in the evolving AI landscape.

Next step: Helios 

Figure 5: AMD Open Scale Rack Infrastructure

Source: AMD, iFAST Compilation, Data as of 20 June 2025. 

At its recent Advancing AI event in San Jose, AMD CEO Dr. Lisa Su revealed the highly anticipated Instinct MI400 series GPUs alongside Helios, a complete rack-scale AI infrastructure platform. With heavyweight endorsements from OpenAI, Meta, Microsoft, and more, AMD aims to challenge Nvidia’s dominance and redefine its role from a chip supplier to an end-to-end AI systems provider.

Crucially, AMD is keeping Helios open-source and standards-driven — contrasting Nvidia’s proprietary NVLink strategy — and encouraging community development around the Unified Acceleration (UXL) Foundation and UALink ecosystem.

Helios and MI400 open a path for AMD to undercut Nvidia’s dominance and attract customers seeking diversification. Yet the obstacles remain, where AMD must prove that ROCm software can match the tooling quality of  Nvidia's CUDA ecosystem and that it can deliver the product at volume without delays. 

AMD’s Helios and MI400 series mark a pivotal inflection point in its AI journey. For customers demanding diversified compute sources and transparent ecosystems, AMD offers a refreshing alternative.

Whether this translates into sustained market share gains depends on AMD’s execution over the next 12–18 months. The foundations are laid — but the race to AI leadership is only getting started.

Risks 

1) Highly competitive AI accelerator market 

While AMD has demonstrated significant market share gains against Intel in both desktop and server CPUs, particularly with its gaming-optimised Ryzen processors and the high-performance EPYC Turin chips, the competitive landscape remains intense. NVIDIA's established dominance in the AI accelerator market, largely due to its mature CUDA software ecosystem, presents a formidable challenge. AMD's ROCm platform, while improving, still faces an ecosystem disadvantage, and closing this software gap is critical for the broader adoption of its AI hardware.

2) Cyclical nature of electronic gadgets 

Demand for AMD's products is also tied to market conditions in specific industries. While demand for AI accelerators is strong, the near-term and long-term trajectory of generative AI solutions remains uncertain. Client segment revenue depends on the market adoption of AI PCs, with no assurance about the adoption rate. Past declines in the Client and Gaming segments have been attributed to factors like changes in replacement cycles and decreased semi-custom revenue.

3) Debate among GPUs and ASICs 

Finally, the accelerated push for in-house chip design (ASICs) among major cloud providers, such as AWS, Google, and Microsoft, also represents a secular trend that threatens to reduce AMD's long-term market share and might erode its pricing power.

Target Price $180, 17% upside potential in FY27

Combining the above factors, we assign a fair PE of 26x to AMD, slightly higher than the industry average of 24x, supported by its technological dominance and secular growth in AI infrastructure.  

We derive a target price of USD 180 with an upside potential of 17% in FY27. Thus, we assign a ‘BUY’ rating for the chip giant based on the potential catalysts ahead. 

Table 3: AMD’s valuation 

	FY24	FY25	FY26	FY27
EPS	3.31	4.00	5.79	7.07
EPS Growth		20.8%	44.8%	22.1%
Current PE	47.43	39.25	27.11	22.21
Fair PE (x)				26
Upside Potential				17%
Target Price (USD)				180

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 18 July 2025.  

Key Takeaway 

In conclusion, AMD is well-positioned to capitalise on the AI revolution and continued demand for high-performance computing. Its strategic investments in cutting-edge hardware, an open software ecosystem, and key partnerships, combined with a resilient financial performance and innovative chiplet design, form a compelling foundation for future growth. 

However, investors should remain mindful of the persistent competitive pressures from Intel and Nvidia, as well as the ongoing macroeconomic and geopolitical risks, particularly those related to export controls and supply chain vulnerabilities. The company's ability to execute its ambitious AI roadmap and further mature its software ecosystem will be pivotal in realising its full long-term growth potential.

For a more diversified option, investors may consider VanEck Semiconductor ETF (SMH) (4.78% AMD exposure) instead. 

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.