Advanced Micro Devices (AMD) made headlines after reporting a strong second quarter with record revenue of about $7.7 billion, a 32% jump from last year. But rising trade tensions between the U.S. and China have forced AMD into a costly new deal. To secure export licenses needed to sell its MI308 AI chips in China, AMD must now pay 15% of its China AI chip revenue to the U.S. government. Against this backdrop, Bernstein analyst Stacy Rasgon weighed in on the deal. He kept a Market Perform rating on AMD with a price target of $140.
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‘85% Is Better Than Zero’
Rasgon described the deal as a “mixed bag.” On one hand, it allows AMD to regain access to the fast-growing Chinese AI market after being blocked by earlier restrictions. On the other hand, the requirement to pay a 15% cut of China sales revenue raises concerns about its long-term financial impacts.
Still, Rasgon emphasized that giving up some revenue is better than losing access entirely. “Keeping 85% is better than zero percent,” he said, underscoring how important it is for AMD to maintain its presence in China.
At the same time, Rasgon warned that strict export controls could push Chinese chipmakers like Huawei to speed up their own development, potentially making them stronger competitors down the line.
Financial Impact of the Deal on AMD
The 15% revenue share is expected to reduce AMD’s gross margins by an estimated 5 to 15 percentage points on impacted products, depending on accounting treatment. This could cost AMD several hundred million dollars annually, or roughly 1% to 2% of its total revenue.
However, Rasgon believes AMD may be able to pass some of these costs to customers, which could ease the pressure on profits.
He also added that unlike Nvidia (NVDA), which is already developing new AI chips designed to meet export rules and potentially avoid these fees, AMD has not yet announced similar China-specific products. This could put AMD at a disadvantage in the near term as competitors adjust faster to changing regulations.
Is AMD a Buy, Sell, or Hold?
Overall, analysts have a Moderate Buy consensus rating on AMD stock based on 26 Buys, 12 Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average AMD price target of $181.36 per share implies 5.27% upside potential.
