Advanced Micro Devices (AMD) saw its shares slide nearly 7% on Wednesday, even after reporting another quarter of robust revenue growth and earnings that topped Wall Street expectations. The market's focus, however, was squarely on the company's profitability outlook, which overshadowed the otherwise strong financial results.
For the second quarter, AMD posted revenue of $11.54 billion, up 50% year-over-year and above the consensus estimate of roughly $11.28 billion. Adjusted earnings came in at $1.66 per share, beating the expected $1.62. The company also issued stronger-than-anticipated guidance for the current quarter, projecting revenue of about $13 billion, plus or minus $300 million, compared with analysts' forecast of approximately $12.52 billion.
Despite these positive numbers, the stock declined sharply as investors questioned whether profit margins would improve alongside rising AI-related sales. The market's reaction suggests that the investment community is now placing greater emphasis on how profitably AMD can expand its artificial intelligence business, rather than solely on revenue growth.
Data center segment drives growth
AMD's data center division remained the primary growth engine during the quarter. Revenue from this segment surged 107% year-over-year to $6.72 billion, accounting for 58% of total company sales. Client revenue increased 23% to $3.1 billion, while Embedded revenue rose 19% to $977 million. Gaming remained the weakest business segment, with revenue falling 31% to $779 million.
While demand for AI products remained strong, investors were more concerned about the company's margin outlook. AMD expects adjusted gross margin to remain at 56% during the third quarter, even as revenue is projected to increase roughly 13% sequentially. This flat margin guidance, despite the strong top-line growth, was the key trigger for the selloff.
Analysts remain optimistic despite selloff
Although the earnings report failed to satisfy investors, several Wall Street firms maintained bullish views on AMD's long-term prospects. Wells Fargo said it remains optimistic about the company's ability to gain market share across server and PC processors while expanding its presence in AI accelerators. Analyst Aaron Rakers noted, "We are positive on AMD's ability to continue gaining share in the server and PC CPU markets, increasing traction in datacenter GPUs, positive / accelerating incremental operating leverage, and ultimately, earnings power in excess of +$14/share by 2027." The brokerage maintained its Overweight rating and raised its price target to $700 from $615.
Bank of America also reiterated its Buy rating with a $620 price target, saying AMD is positioned for accelerating revenue growth over the next two years. The brokerage acknowledged that the near-term earnings beat and guidance increase were modest but argued that they are less important than the expected ramp-up of the company's Helios rack system beginning later this year. Goldman Sachs likewise maintained a Buy rating and a $640 price target. The bank noted that investors had entered the earnings release with high expectations, particularly around server CPU market share gains and AMD's next-generation AI products. While management highlighted expectations for the Data Center business to grow by well over 100% in 2027, Goldman Sachs suggested "the most bullish expectations were likely ahead of this level on revenue and gross margin."
The divergent views between the market's immediate reaction and the analysts' longer-term optimism highlight the tension between short-term profitability concerns and the potential for sustained AI-driven growth. For investors, the key question remains whether AMD can translate its strong revenue momentum into improved margins as it scales its AI offerings. The company's ability to execute on its product roadmap and gain further traction in the data center GPU market will likely be critical in determining whether the stock can recover from this dip.
In the broader context, AMD's performance is part of a larger trend in the semiconductor industry, where AI demand is reshaping competitive dynamics. As seen with other chipmakers, the market is rewarding companies that can demonstrate both top-line growth and improving profitability. AMD's current margin outlook may be a temporary setback, but analysts believe the company's strategic position in AI and server markets provides a solid foundation for future earnings growth.
This article is for informational purposes only and does not constitute financial advice.
