Strong Earnings Struggle to Lift AMD Stock as Downbeat Sentiment Reigns

Advanced Micro Devices (AMD) delivered impressive first-quarter results this week, with revenue reaching $7.44 billion, a robust 36% increase year-over-year. The company surpassed analyst expectations with adjusted earnings per share (EPS) of $0.96, up 55% from the previous year, and maintained a healthy non-GAAP gross margin of 54%.

Yet, despite these substantial numbers, investors’ reactions remained cautious. AMD shares initially jumped 4% in after-hours trading following the earnings release but later settled with gains of less than 1% as the market digested the whole picture, especially the projected $1.5 billion revenue hit from new U.S. export restrictions on AI chips to China.

This mixed reaction highlights the tension playing out across markets as investors look under the hood of AMD. Impressive growth momentum in AI and data center markets is offset by significant regulatory headwinds, creating uncertainty for the remainder of 2025.

While price momentum is showing positive signs in the short term, I am neutral on the stock for now and will hold off until a more compelling case presents itself. As things stand, AMD simply has too much uncertainty and volatility.

High Contrast Business Segment Performance

AMD’s Q1 results revealed striking differences across its business segments. Data Centers led the way, with a 57% year-over-year surge in revenue to $3.7 billion, primarily driven by the company’s expanding footprint in AI processors, including a strong demand for AMD’s EPYC CPUs and Instinct GPUs.

The Client segment also delivered exceptional results, with revenue soaring 68% year-over-year to $2.3 billion, where demand for AMD’s latest “Zen 5” Ryzen processors boosted average selling prices.

AMD Ryzen 7 7700 processor on MSI PRO motherboard (2024)

However, not all segments contributed positively. The Gaming segment experienced a significant 30% year-over-year decline, while the Embedded segment saw a more modest 3% decrease. Management noted that improving demand in the aerospace and communications sectors could help stabilize Embedded business lines in future quarters.

CEO Lisa Su highlighted the company’s “differentiated product portfolio and consistent operational execution” as key factors enabling AMD to outperform despite challenging macro and regulatory environments. The significant earnings leverage as the business scaled was evident, with non-GAAP operating income up 57% and net income up 55% year-over-year.

Export Restrictions Cast a Long Shadow

The most significant cloud over AMD’s otherwise sunny outlook comes from U.S. export restrictions on advanced AI chips to China. Management estimates these restrictions will reduce 2025 revenue by approximately $1.5 billion, with most of the impact concentrated in the second and third quarters.

This hit is significant considering China accounts for roughly 24-25% of AMD’s total revenue. The company also disclosed an $800 million charge related to new tariffs and export rules, which is expected to lower gross margins by 11 percentage points compared to levels excluding the charge.

AMD has implemented several strategies to mitigate these headwinds. Moreover, there has been a temporary boost from Chinese customers accelerating purchases ahead of the new restrictions, and the company is intensifying its focus on growing AI and data center penetration in other global markets. Management also projects that double-digit growth in these segments will help offset the shortfall in China.

Macro Policy Shifts on the Horizon

Recent developments may provide some relief. The Trump administration announced plans to overhaul regulations limiting how many AI chips individual countries can buy. Commerce Department officials described the Biden-era AI rules as “overly complex, overly bureaucratic” and said they “would stymie American innovation.”

This announcement has triggered modest gains for semiconductor stocks, including AMD. However, industry executives (and analysts) remain cautious that tight export controls will simply take a different form under the new administration.

According to analysts at BofA Securities, the so-called “AI diffusion” rules had been set to take effect on May 15 and were expected to reduce the long-term market for AI chips by as much as 10%. The Trump administration’s decision to scrap these specific regulations creates both opportunity and uncertainty for AMD.

AMD Management Outlook Remains Optimistic

AMD’s management maintains a positive outlook and has issued guidance projecting Q2 revenue of approximately $7.4 billion, with strong sequential growth projected in the client and gaming segments. This guidance factors in a $700 million revenue reduction attributed explicitly to the new export license requirements for MI308 shipments to China.

Management projects double-digit percentage growth for 2025, with revenue expansion in both data center and client businesses. Free cash flow in Q1 totaled $727 million, which provides financial flexibility for the company as it navigates the challenging regulatory landscape.

AMD Chair and CEO Lisa Su at Computex in Taipei in 2024

CEO Lisa Su expressed confidence that AMD remains “well-positioned for share gains and growth, with AI and advanced computing solutions driving future developments.” The company highlighted the successful ramp of fifth-generation EPYC Turin processors and continued momentum for fourth-generation EPYC CPUs, with over 30 new cloud instances launched in partnership with AWS, Alibaba, and Google.

What is AMD’s Target Price?

Wall Street analysts are cautiously optimistic about AMD. The stock carries a Moderate Buy consensus rating based on 22 Buy, nine Hold, and zero Sell ratings over the past three months. AMD’s average price target is $125.24, representing a potential upside of ~23% from current levels.

See more AMD analyst ratings

However, several firms have lowered their targets following the Q1 report, citing regulatory risks as a primary concern. For instance, Jefferies reduced its price target from $120 to $100 while maintaining a Hold rating, noting that while overall estimates moved higher, “AI growth is the primary metric for the stock, and on that front, estimates move lower.”

Similarly, Truist lowered its target from $130 to $111, expressing a lack of conviction in “AMD’s ability to ramp MI350, MI400, and beyond, in a way that will be truly competitive.”

Despite these concerns, some investors consider this a buying opportunity. For example, Cathie Wood’s ARK Investment Management has been actively acquiring AMD shares, adding 114,581 shares valued at approximately $11.3 million in recent purchases. This vote of confidence from a prominent tech investor suggests the AI thesis for AMD remains intact.

The Final Verdict on AMD Stock

AMD’s stock offers a complex risk-reward profile. Strong positioning in AI and data center markets is fueling impressive growth. However, regulatory uncertainties and the potential revenue impact from export restrictions present meaningful near-term headwinds.

There are things to like about AMD, but for now, I remain neutral on the stock until the Trump administration’s new export control framework evolves, and signs of whether AMD can successfully compensate for the China shortfall through growth in other markets become more apparent.