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

According to a latest research report released by Zhitong Finance APP, Morgan Stanley noted that thanks to the strong performance of data centers, particularly the upward revision of the server CPU business beyond expectations, AMD (AMD.US) successfully hedged against the weakness in the PC market. Morgan Stanley raised its fiscal year 2027 revenue forecast for AMD from $89.13 billion to $98.94 billion and its non-GAAP earnings per share (EPS) forecast from $15.64 to $18.77, and increased its target price from $510 to $550; however, considering that the valuation already exceeds that of peers such as Nvidia and Broadcom, the firm maintained its "Equal Weight" rating.

Financial data shows that AMD's revenue for the third fiscal quarter reached $13.377 billion, an increase of 44.7% year-on-year and 16% quarter-on-quarter, surpassing market expectations of $13.096 billion; non-GAAP EPS was $2.09, exceeding the market expectation of $1.95; non-GAAP gross margin was 55.9%, in line with expectations. By business segment, data center business revenue was $8.546 billion, a year-on-year increase of 96.9% and a quarter-on-quarter increase of 27.2%; client business revenue was $2.949 billion, up 7.2% year-on-year; gaming business revenue was $773 million, down 40.4% year-on-year; embedded business revenue was $1.109 billion, up 29.4% year-on-year.

The most noteworthy aspect is the growth outlook for server CPUs. Morgan Stanley pointed out in the report that in the first three quarters of 2026, AMD's server CPU shipment volume increased about 50% year-on-year (compared to only a 4% increase for Intel during the same period), while revenue rose about 90% year-on-year; furthermore, the company's guidance for server CPU revenue growth in 2027 has been raised from the previous 70% to over 100%. Supply constraints have not impacted AMD as they have Intel. Morgan Stanley estimates that of the total incremental server CPU shipments from the two companies next year, AMD will contribute slightly over 60%, while Intel will lose a roughly equivalent share—even in a constrained supply environment where IDM (in-house manufacturing) should theoretically benefit the most, Intel has not reversed its share loss. The report also reminds that Intel may only offer competitive products in the latter half of 2028 at the earliest, so AMD's long growth runway remains clear.

On AI GPUs, AMD this quarter confirmed for the first time revenue from its Helios rack-level products. The company stated that all major clients have strong demand for 2027, and their internal forecast has been further raised compared to 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 for next year. However, the report also points out the "cost" of growth: this quarter, AMD confirmed an $1.1 billion accounting expense related to warrants, resulting in GAAP EPS being about 43% lower than non-GAAP. Morgan Stanley believes this cost, which is significant relative to AMD's quarterly GPU revenue of about $3.5 billion, should be reflected in AMD's valuation discount, similar to market concerns about "cycle financing" at big tech companies.

In addition, the PC business remains a concern. AMD's guidance for client revenue in the fourth quarter points to a approximately 23% quarter-on-quarter decline, about $400 million lower than Morgan Stanley's latest pre-earnings expectations, and the trend is similar to Intel's prior earnings revision. However, since PCs currently account for less than 10% of AMD's revenue, the overall impact on profitability is limited. Morgan Stanley expects client CPUs to bottom out in the second quarter of 2026 (with a year-on-year decline of over 30%).

Based on the new earnings forecasts, Morgan Stanley gives AMD a target valuation of approximately 20x 2028 fiscal year EPS ($27.59), corresponding to a target price of $550—about 14% upside compared to the closing price of $483.90 on November 3. They also provide a range of $750 in a bull case and $300 in a bear case. Morgan Stanley concludes that AMD's execution on server CPUs is "very impressive," and they clearly prefer AMD to Intel on the CPU theme; however, considering that GPU business will account for 42%/46% of AMD's revenue in 2027/2028, and the market leader in this field currently only trades at about 10x 2028 PE, AMD's approximate 20x valuation premium is "too wide," and its 100% server growth rate may still not outperform the ARM camp. Therefore, they maintain an "Equal Weight" rating, awaiting a better entry point.