Advanced Microdevices (NASDAQ:AMD) The stock has been on fire this year, and the rise continued after the semiconductor company reported strong first-quarter results and issued upbeat guidance. The stock is up more than 90% so far this year, but it looks like it could have a lot more upside.
Let’s dive into the company’s earnings results and outlook to see why the stock’s momentum looks like it may continue.
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The era of data center CPUs is here
With the rise of agent AI, now is the time for data central processing units (CPUs) to shine, and AMD is one of the companies best positioned for the next phase of AI infrastructure development.
Given the demand indicators it’s seeing today and the number of CPUs needed for agent AI, the company said it now projects the server CPU total addressable market (TAM) will reach $120 billion by 2020, representing more than 35% compound annual growth. This is a big step up from the 18% annual growth and $60 billion TAM it predicted at its Analyst Day last November. It believes it can capture more than 50% of this market.
AMD has already started to see demand for server CPUs starting to increase, with data center CPU revenue increasing more than 50% in the quarter. It expects growth to accelerate to 70% in the second quarter and remain strong for the rest of the year and into 2027 as its next generation of CPUs improve. Meanwhile, it predicts that the average selling prices of its next-generation CPUs will also increase as core counts increase. Core count is important for agent AI because each core serves as an independent processing zone, allowing CPUs to drive multiple AI tasks at the same time.
Overall, AMD’s first-quarter revenue increased 38% year over year to $10.25 billion. Adjusted gross margin hit 55%, up 170 basis points from a year ago, helped by more revenue coming from its data center products. Adjusted earnings per share rose 43% to $1.37. The results were well above the $1.29 adjusted earnings per share on $9.89 billion in revenue that analysts had expected.
Data center revenue increased 57% year over year in the quarter to $5.8 billion. In addition to strong growth in its CPU, it also saw strong year-over-year growth in its graphics processing units (GPUs).
Meanwhile, revenue from the client and gaming segment rose 23% to $3.6 billion. Within the segment, customer revenue rose 26% to $2.9 billion as it continues to gain share in the PC market, while gaming revenue rose 11% to $720 million. Meanwhile, AMD’s smaller embedded segment saw revenue rise 6% to $873 million.
