Advanced Micro Devices (NASDAQ: AMD) shares have been on fire this year, and the surge continued after the semiconductor company reported strong first-quarter results and issued upbeat guidance. The stock is up more than 90% year to date, but it looks like it could have a lot more upside.
Let’s dig into the company’s earnings results and prospects to see why it looks like the stock’s momentum can continue.
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The age of data center CPUs is here
With the rise of agentic AI, now is the time for data central processing units (CPUs) to shine, and AMD is one of the companies best positioned for the next phase of the AI infrastructure build-out.
Given the demand indicators it is seeing today and the amount of CPUs required for agentic AI, the company said it now projects the server CPU total addressable market (TAM) to reach $120 billion by 2020, representing more than 35% compounded annual growth. That is a huge step up from the 18% annual growth and $60 billion TAM it predicted at its Analyst Day last November. It believes it can capture more than a 50% share of this market.
AMD has already started to see demand for server CPUs begin to pick up, with data center CPU revenue climbing more than 50% in the quarter. It expects that growth to accelerate to 70% in Q2 and to continue to be strong the rest of the year and into 2027, as it ramps up its next generation of CPUs. Meanwhile, it sees average selling prices for its next-generation CPUs also rising as core counts increase. Core counts are important for agentic AI because each core serves as an independent processing zone, letting CPUs power several AI tasks at the same time.
Overall, AMD’s Q1 revenue climbed by 38% year over year to $10.25 billion. Adjusted gross margin came in at 55%, up 170 basis points from a year ago, helped by more revenue coming from its data center products. Adjusted earnings per share surged 43% to $1.37. The results were well ahead of the $1.29 in adjusted EPS on $9.89 billion in revenue that analysts were expecting.
Data center revenue surged 57% year over year in the quarter to $5.8 billion. In addition to its strong CPU growth, it also saw strong year-over-year growth in its graphics processing units (GPUs).
Client and gaming segment revenue, meanwhile, increased by 23% to $3.6 billion. Within the segment, client revenue rose by 26% to $2.9 billion as it continues to take share in the PC market, while gaming revenue rose 11% to $720 million. AMD’s smaller embedded segment, meanwhile, saw revenue increase by 6% to $873 million.
finance.yahoo.com
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