AMD Q425: Beat and Dip

Executive Summary

The fiscal year 2025 has marked a structural reflection for Advanced Micro Devices (AMD), transitioning from a secondary silicon designer to a primary architect of global artificial intelligence (AI) infrastructure.

We highlighted the counter in June 2025 with a target price of $180 (vs previous price of $128), and the counter delivered a better-than-expected performance with a peak share price of $264, far beyond our initial positive expectation.

Coming into 4Q25 earnings release, our positive earnings expectation remains validated. Despite delivering a comprehensive beat-and-raise quarter, AMD's share price experienced a decline in the immediate post-earnings period.

Following the recent pullback, valuation has normalised relative to forward earnings growth. Based on our fair PE model of 28x and FY27 earnings forecast, we derive a target price of $245, implying a 31% upside potential from current price of $187. As such, we assign a ‘BUY’ rating for AMD.

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

Figure 1: AMD’s 1y performance

Beat and raise Q4 25 result

The company’s fourth-quarter results (released on 3 February 2026) demonstrated strong operating execution, with non-GAAP profitability metrics highlighting significant operating leverage. Total revenue for the quarter reached a record $10.3 billion, a 34% increase year-over-year, significantly outperforming the analyst consensus estimates of $9.6 billion to $9.67 billion.

The quality of earnings in the fourth quarter was exceptionally high on a non-GAAP basis. Non-GAAP diluted earnings per share (EPS) reached $1.53, a 40% y/y expansion that beat the consensus estimate of $1.32 by nearly 16%. This performance was driven by the aggressive scaling of the Data Centre and Client segments, which collectively mitigated the anticipated cyclical maturity of the Gaming business.

Table 1: AMD’s Q4 25 earnings summary

Metric (non-GAAP)	Q4 25 ($m)	Q4 24 ($m)	y/y
Total Revenue	10,270	7,658	up 34%
Gross Profit	5,855	4,140	up 41%
Gross Margin	57%	54%	up 300 bps
Operating Expenses	3,001	2,114	up 42%
Operating Income	2,854	2,026	up 41%
Operating Margin	28%	26%	up 200 bps
Net Income	2,519.00	1,777.00	up 42%
Diluted EPS	$1.53	$1.09	up 40%

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 5 Feb 2026.

Segmental earnings from Q4 25

Segmental performance highlights are summarised below.

Table 2: Segmental performance

	Q4 25 ($m)	Q4 24 ($m)	y/y	Q3 25 ($m)	q/q
Data Centre
Net revenue	5,380	3,859	up 39%	4,341	up 24%
Operating income	1,752	1,157	up 51%	1,074	up 63%
Client & Gaming
Net revenue	3,940	2,876	up 37%	4,048	down 3%
Operating income	725	496	up 46%	867	down 16%
Embedded
Net revenue	950	823	up 3%	857	up 11%
Operating income	357	362	down 1%	283	up 26%

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 5 Feb 2026.

Data Centre

The Data Centre segment delivered record quarterly revenue of $5.4 billion, up 39% y/y. This growth is anchored by the systematic displacement of competitors in the server CPU market and the rapid adoption of Instinct AI accelerators.

In the x86 server processor market, AMD’s EPYC family continues to achieve continued market share gains, with third-party data suggesting the company’s share has ascended to approximately 37.2% to 43%. The 5th Gen EPYC processors ("Zen 5") have seen accelerating traction due to superior performance-per-watt and core density. Management noted that the CPU order book strengthened significantly in the final 60 days of the fiscal year, leading to an atypical first-quarter guidance for 2026 where server CPU revenue is projected to grow sequentially.

The scaling of the data centre AI franchise remains the most significant valuation driver. Management highlighted that eight of the top ten global AI companies are now utilising Instinct GPUs for production workloads. The fourth quarter marked a transition as the MI350 series began its broader ramp with expanded hyperscaler availability. Strategic partnerships, such as the multi-year deal with OpenAI to deploy GPU capacity through 2030, serve as a premier validation of the company's hardware and software stack.

While global growth is the priority, the China market provided a tactical tailwind in Q4. The realization of $390 million in revenue from MI308 GPU shipments to China—following U.S. government license approvals—contributed to the quarterly beat. Looking ahead, the launch of the MI450 series and the "Helios" rack-scale platform in the second half of 2026 will be critical for competing with next-generation architectures.

Client Computing

The Client segment delivered record quarterly revenue of $3.1 billion, up 34% y/y. This performance was driven primarily by strong demand for Ryzen desktop and mobile processors, particularly the Ryzen AI 300 series featuring the XDNA 2 architecture. Offering up to 50 TOPS of NPU performance, these chips exceed the baseline requirements for Microsoft’s Copilot+ platform, positioning AMD at the vanguard of the AI PC transition.

Gaming

The Gaming segment registered quarterly revenue of $0.8 billion, up 50% y/y. It defied the late-cycle narrative in the final quarter of 2025, driven by a combination of holiday seasonality and tactical product placement. Management commentary indicated that development for the next-gen Xbox SoC (featuring Zen 6 and likely RDNA 5) is "progressing well" for a 2027 launch.

Post-earnings beat and dip

Despite delivering a comprehensive beat-and-raise quarter, AMD's share price experienced a decline in the immediate post-earnings period.

Apart from the broad-based market decline led by software players, we see that this market reaction was driven by several underlying factors that tempered investor enthusiasm:

Sequential Guidance Concerns: The Q1 2026 revenue guidance of $9.8 billion surpassed estimates but represented a 5% sequential decline from the record Q4. While due to seasonal declines in Client, Gaming, and Embedded segments, it challenged the uninterrupted growth narrative for some investors.  

Table 3: AMD’s Q1 26 guidance

	Q1 26 guidance
Revenue	~$9.8 billion (including ~$100 million of AMD Instinct MI308 sales to China)
Gross Margin	~55%
Operating Expenses	~3.05 billion
Interest Expense	~$35 million
Effective Tax Rate	~13% of pre-tax income
Diluted Share Count	~1.65 billion shares

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 4 Feb 2026.

China Influence on the Beat: A portion of the Q4 revenue overperformance ($390 million) was attributed to MI308 shipments to China. Investors may interpret this as partially non-recurring, leading to more cautious forward assumptions.

Figure 2: China's contribution to AMD’s earnings

Margin: Non-GAAP Gross Margin rose to 57% due to a one-time $306 million inventory release. Excluding this, margins were 54%-55%. Investors will be closely monitor MI450's ramp efficiency and yield performance to ensure margins don't stall.

Figure 3: AMD’s gross margin

Valuation Compression: Before earnings, AMD was trading at a high forward non-GAAP P/E of approximately 38x to 40x (vs Nvidia and Broadcom’s 25-32x). This price for perfection phenomenon increased sensitivity to any forward uncertainty, especially with the highly anticipated MI450 ramp not expected until H2 2026. With latest development of the heavily penalised share price, the next 4 quarter forward EPS has downwardly adjusted to 28x, indicating a relatively reasonable level.

Figure 4: 1y forward consensus PE vs industry peers

BUY; Target price of 245 with 31% upside potential in FY27

We are modelling FY2026 EPS of $6.6 and FY 2027 EPS of $8.8. While the Q1 2026 guidance ($9.8 billion) was viewed as soft by some, it actually beats the consensus of $9.38 billion. The market's reaction is a classic expectations reset, which provides a healthy entry point for long-term investors.

Table 5: AMD’s earnings forecast

	FY25	FY26	FY27
EPS	2.6	6.6	8.8
y/y growth		153.8%	32.5%
PE	71.9	28.2	21.3
Current Price	187
Fair PE	28
Upside Potential			31%
Target Price			245

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 6 Feb 2026.

In our analysis, we have incorporated the broad-based industry earnings growth, particularly from the massive data centre buildup in 2026 and 2027, to serve as one of the strongest catalysts for AMD’s revenue driver. We view the Helios architecture as a key strategic step in AMD’s evolution toward AI infrastructure relevance.

For the console/gaming segment, AMD’s semi-custom business (chips for PS5 and Xbox Series X/S) is facing what management describes as a "significant double-digit percentage decline" for FY2026. We acknowledge the cyclical nature of the sluggish growth in FY26, given the potential stagnant hardware sales from PS5/Xbox as people are awaiting the next-gen product. Yet, we expect a U-shaped rebound in FY27/28 once the hardware reset for these products materialises, contributed by the potential new-gen console (such as next-gen Xbox or PS6) or Radeon RX9000 to regain market share.

Nevertheless, challenges remain. Concerns over supply chain stability driven by TSMC’s limited leading-edge capacity and a projected slump in the gaming segment for FY26 mean that AMD will rely on a significant boost from other business units to offset these revenue headwinds.

Following the recent correction, we believe the current price level of AMD is already undervalued by its potential earnings. Accounting for our fair PE model of 28x and FY27 earnings forecast, we opine a target price of $245 with a 23% upside potential from current price of $187 (as of 6 Feb 2026).

As such, we assign a ‘BUY’ rating for AMD. 

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

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.