Morgan Stanley raises AMD (AMD.US) price target to $550: 2027 server CPU growth forecast jumps from 70% to 100%.

Morgan Stanley's latest research note points out that thanks to strong data center performance, especially the better-than-expected upward revision in the server CPU business, AMD (AMD.US) has successfully offset weakness in the PC market. Morgan Stanley raised AMD's FY2027 revenue forecast from $89.13 billion to $98.94 billion, raised its non-GAAP earnings per share (EPS) forecast from $15.64 to $18.77, and raised its price target from $510 to $550; however, given that valuation is already above peers such as NVIDIA Corporation and Broadcom Inc., the firm maintained its "Equal-weight" rating unchanged. Financial results show that AMD's third-quarter revenue reached $13.377 billion, up 44.7% year over year and up 16% quarter over quarter, above the market expectation of $13.096 billion; non-GAAP EPS was $2.09, beating the market expectation of $1.95; non-GAAP gross margin was 55.9%, in line with expectations. By segment, data center revenue was $8.546 billion, surging 96.9% year over year and up 27.2% quarter over quarter; client revenue was $2.949 billion, up 7.2% year over year; gaming revenue was $773 million, down 40.4% year over year; embedded revenue was $1.109 billion, up 29.4% year over year. Most notable is the growth outlook for server CPUs. Morgan Stanley noted in the report that in the first three quarters of 2026, AMD's server CPU shipments grew about 50% year over year (Intel Corporation grew only 4% over the same period), while revenue grew about 90% year over year; and the company's guidance for 2027 server CPU revenue growth has been raised from the previous 70% to more than 100%, with supply bottlenecks not constraining AMD the way they have constrained Intel Corporation. Morgan Stanley estimates that of the combined server CPU shipment next year, AMD will contribute slightly more than 60%, while Intel Corporation will lose roughly an equivalent shareeven in a tight-supply environment where the IDM (in-house manufacturing) model should theoretically benefit most, Intel Corporation has failed to reverse the trend of share loss. The report also cautions that Intel Corporation may not be able to offer a competitive comparable product until the second half of 2028 at the earliest, and AMD's long growth runway remains clear. On AI GPUs, AMD confirmed revenue from its Helios rack-scale product for the first time this quarter; the company said demand from all core customers for 2027 is very high, and its internal forecast has been further raised from 90 days ago. Morgan Stanley slightly raised its 2027 GPU revenue forecast by $500 million to $40 billion, basically maintaining its baseline estimate of about 3GW of installed capacity next year. But the report also flags the "cost" of growth: this quarter AMD recognized $1.1 billion in accounting charges related to warrants, causing GAAP EPS to be about 43% lower than non-GAAP. Morgan Stanley believes that this costnot insignificant relative to quarterly GPU revenue of about $3.5 billionshould be reflected in a valuation discount for AMD, just as the market's concerns about "circular financing" among large tech companies are. In addition, the PC business remains a concern. AMD's guidance for fourth-quarter client revenue implies a quarter-over-quarter decline of about 23%, about $400 million below Morgan Stanley's latest pre-earnings estimate, a trend similar to Intel Corporation's earlier guidance revision. However, since PCs currently account for less than 10% of AMD's revenue, the impact on overall profitability is limited, and Morgan Stanley expects client CPUs to bottom in the second quarter of 2026 (down 30%+ year over year). Based on the new earnings forecasts, Morgan Stanley assigns AMD a target valuation of about 20x FY2028 EPS ($27.59), corresponding to a $550 price targetabout 14% upside from the November 3 closing price of $483.90. The firm also provides a bull-case target range of $750 and a bear-case target of $300. Morgan Stanley concludes that AMD's execution in server CPUs is "very outstanding," and on the CPU theme it clearly prefers AMD over Intel Corporation; however, given that the GPU business will account for 42%/46% of its revenue in 2027/2028 respectively, while the leader in that field currently trades at only about 10x 2028 P/E, AMD's valuation premium of about 20x is "too wide," and its 100% server growth rate may still struggle to outpace the ARM camp, so it maintains an "Equal-weight" rating and waits for a better entry point.