Should You Buy, Hold, or Sell AMD Stock Ahead of Q1 Earnings?

Advanced Micro Devices AMD is set to release its first-quarter 2025 results on May 6.

AMD expects first-quarter 2025 revenues of $7.1 billion (+/-$300 million). At the mid-point, this represents year-over-year growth of approximately 30% and a sequential decline of approximately 7%.

The Zacks Consensus Estimate for AMD’s first-quarter revenues is pegged at $7.12 billion, suggesting year-over-year growth of 30.11%. The consensus mark for first-quarter earnings is pegged at 93 cents per share, unchanged over the past 30 days. The earnings estimate indicates growth of 50% on a year-over-year basis.

AMD beat the Zacks Consensus Estimate for earnings in all the trailing four quarters, the average surprise being 2.32%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar).

Advanced Micro Devices, Inc. Stock Price and EPS Surprise

Advanced Micro Devices, Inc. price-eps-surprise | Advanced Micro Devices, Inc. Quote

Let’s see how things have shaped up for the upcoming earnings announcement.

AMD’s Data Center & Client Segment Revenues to Grow Y/Y

AMD’s first-quarter performance is expected to have benefited from growth in both its data center and client segments, driven by continued demand for its EPYC processors and Ryzen chips. The data center segment, in particular, has been a major contributor to AMD’s success, and the company expects this trend to have continued in the to-be-reported quarter. 

AMD expects the Data Center segment’s revenues to significantly increase, driven by the strong sales of its data center chips that support hyperscalers and power AI and Generative AI applications. The Zacks Consensus Estimate for first-quarter Data Center revenues is pegged at $3.4 billion, indicating an impressive year-over-year surge of 47.5%.

The company is likely to see continued growth in its client business, driven by higher demand for Ryzen processors across desktop and mobile platforms. AMD’s collaborations, such as the one with Dell Technologies DELL for Ryzen Pro processors in commercial PCs, are expected to have bolstered growth in this segment in the to-be-reported quarter.

The Zacks Consensus Estimate for first-quarter Client segment revenues is pegged at $2.04 billion, indicating year-over-year growth of 49.3%.

Weak Embedded & Gaming to Hurt AMD’s Q1 Results

AMD’s near-term prospects suffer from weakness in the Embedded and Gaming segments. On a year-over-year basis, these segments' revenues are expected to have declined.

The Zacks Consensus Estimate for first-quarter Embedded revenues is pegged at $570 million, indicating a 0.9% year-over-year decline. The consensus mark for Gaming revenues is pegged at $509 million, suggesting a massive 38.1% decline.

AMD Stock Underperforms Sector & Industry

Advanced Micro Devices shares have lost 17.9% in the year-to-date period, underperforming the Zacks Computer and Technology sector’s decrease of 9% and the Zacks Computer – Integrated Systems industry’s decline of 7.2%.

YTD AMD Stock Performance

The AMD stock is not so cheap, as its Value Score of F suggests a stretched valuation at this moment.

In terms of the forward 12-month price/sales, Advanced Micro Devices is currently trading at 4.68X, higher than the Computer – Integrated Systems industry’s 2.90X.

Price/Sales Ratio (Forward 12 Months)

AMD Benefits From Rich Partner Base

AMD benefits from a rich partner base, which includes Microsoft MSFT, Oracle, Dell Technologies, Hewlett Packard, Lenovo, Meta Platforms META and IBM having Instinct platforms in production.

The demand for AI accelerators like the Instinct MI300 series, especially from hyperscalers, is expected to continue growing, further boosting data center revenues in the first quarter of 2025. In the Data Center AI business, MI300X deployment increased with cloud partners, including Meta Platforms, Microsoft, IBM, Digital Ocean and Dell Technologies, among others.

Meta Platforms used MI300X to power its Llama 405B frontier model on meta.ai. It added instinct GPUs to its OCP-compliant Grand Teton platform, designed for deep learning recommendation models and large-scale AI inferencing workloads.

Microsoft is using MI300X to power multiple GPT 4-based Copilot services. IBM announced plans to enable MI300X on its Watson X AI and data platform for training and deploying enterprise-ready generative AI applications.

Dell Technologies started offering MI300X as part of its AI factory solution suite. DELL is providing multiple ready-to-deploy containers through its Dell Enterprise Hub on Hugging Face.

Conclusion

AMD’s expanding portfolio and strategic acquisitions are expected to have improved its top-line growth in the to-be-reported quarter amid weakness in the Embedded and Gaming segments, and fierce competition from NVIDIA.

AMD has a Growth Score of C, which makes it unattractive for growth-oriented investors. Stretched valuation is another concern.

AMD currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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