Goldman Sachs Group, Inc. comments on AMD (AMD.US) Q3 results: strong data center CPU and GPU performance, clear growth visibility for 2027

Goldman Sachs Group, Inc. released a research report maintaining a "Buy" rating on AMD (AMD.US) with a 12-month target price of $675, representing 39.5% upside from the latest closing price. Goldman Sachs Group, Inc. noted that AMD's Q3 results and Q4 guidance both exceeded market expectations, with data center server CPUs and GPUs strong in tandem, and management expects company-wide revenue growth of over 80% and data center revenue growth of over 100% in 2027, despite continued headwinds in the PC market. Goldman Sachs Group, Inc. stated that these growth targets have clear visibility. Q3 Results Beat Expectations AMD's Q3 revenue was $13.4 billion, above Goldman Sachs Group, Inc.'s estimate of $13.3 billion and the market consensus of $13.1 billion; gross margin was 55.9%, roughly in line with expectations; operating margin was 29%, above Goldman Sachs Group, Inc.'s estimate of 28.7% and the market consensus of 28.0%; non-GAAP EPS was $2.09, above Goldman Sachs Group, Inc.'s estimate of $2.03 and the market consensus of $1.95. By segment, data center revenue was $8.5 billion and gaming revenue was $773 million, both above expectations; embedded revenue was $1.1 billion, broadly in line with expectations. AMD's Q4 revenue guidance midpoint is $17 billion, slightly below Goldman Sachs Group, Inc.'s estimate of $17.6 billion but above the market consensus of $16.3 billion. By segment, data center revenue is expected to grow approximately 50% quarter-over-quarter, embedded to grow double digits quarter-over-quarter, and client/gaming to decline more than 20% quarter-over-quarter. Q4 non-GAAP gross margin guidance is 55%, and implied non-GAAP EPS (excluding stock-based compensation) is $2.92, above the market consensus of $2.65 and slightly below Goldman Sachs Group, Inc.'s estimate of $2.97. Data Center and CPU Businesses Strong, 2027 Revenue Expected to Grow Over 80% AMD's Q3 data center revenue grew 97% year-over-year to $8.5 billion. The company said it began initial shipments of MI455 to multiple key hyperscalers and other customers in Q3; management expects OEMs such as Hewlett Packard Enterprise Co. and Dell Technologies, Inc. Class C to ramp shipments in Q4. AMD expects data center revenue to grow well over 100% year-over-year in 2027, with overall company revenue growth exceeding 80%. The report noted that after Intel Corporation (INTC.US) gave weak guidance last week, investor expectations for AMD had clearly declined, but the latest results and guidance still support Goldman Sachs Group, Inc.'s optimistic outlook. AMD said server CPU demand has been strong following the Venice launch, and it expects Q4 server CPU revenue to grow 20% quarter-over-quarter and 100% year-over-year in 2027, with increased supply availability being one reason for the raised outlook. The company expects the server CPU market to grow to $220 billion by 2030 at a compound annual growth rate of approximately 50%. On gross margin, AMD expects 2027 to still be affected by product mix, but greater fixed cost absorption provides a tailwind, and Goldman Sachs Group, Inc. expects gross margin to remain at approximately 55%. The company also expects 2027 operating expense growth to be less than half of revenue growth (over 80%), thereby achieving significant operating leverage.