Advanced Micro Devices Inc (AMD) USD0.01

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AMD’s fourth-quarter revenue rose 34% to a record $10.3bn, ahead of market forecasts. The beat was driven by $0.4bn worth of sales of its previously written-down inventory to China. Growth was led by a 39% rise in its Data Center segment to $5.4bn followed by a 37% rise in Client and Gaming revenue to $3.9bn

Underlying operating profit rose 41% to $2.9bn, as the increase in revenue more than offset higher operating expenses.

Free cash flow jumped 91% higher to $2.1bn due to the uplift in profitability. Net cash, including lease liabilities, improved from $2.9bn to $6.7bn.

For the current quarter, AMD expects revenue to grow by around 32% to $9.8bn at the midpoint of guidance.

The shares fell 7.8% in early trading.

Our view

AMD delivered a decent quarter, with performance exceeding market expectations thanks to sales of its previously written-down chips to China. But with the shares having doubled over the past year, expectations for 2026 were sky high. Guidance for the current quarter was underwhelming, which disappointed markets on the day.

AMD designs high-performance computer chips for laptops, game consoles, and data centres. The data centre space holds the key to future growth. New and more advanced chips are coming online, and there’s now a strong order book from OpenAI (expected to be a $100bn opportunity), and a prior deal with Oracle, which acts as solid proof points that AMD’s new chips are, at least in theory, the real deal. These are weighted toward the back end of 2026 though, so patience is needed.

But there’s more than just the chips these days, with networking and software to consider too, areas in which Nvidia still has an edge. AMD is also relatively unproven at this scale, but clearly the market is expected to be large enough for AMD to capture demand as a strong alternative option.

Expectations are high, and research costs are ramping up to try and deliver an attractive AI product. This is a necessary use of cash, but margins are already lower for AI chips, so we’ll be keeping an eye on how this evolves as AI products become a larger part of the mix.

China is important, too, but the outlook is as murky as ever. In theory, there’s licences that could enable shipments back into China, but whether they are willing recipients at a grand scale anymore is uncertain.

AI demand is likely to be a key driver of growth, and the area investors are most focused on. But AMD still has a large exposure to the PC and gaming markets, where performance has been encouraging.

In PC land, AMD has been grabbing market share from key rival Intel, and the market has been performing well after a torrid time. But we are a little cautious about the impact of a tariff-related pull-forward in demand that could unwind over the coming quarters – an area to watch.

AMD is on the right track to capitalise on the growing demand for AI compute, and take a meaningful position in the market. But there’s a lot to execute on, and buyer concentration in the AI space is a risk. With that in mind, and shares meaningfully higher off the back of the OpenAI deal, we think a lot of the upside potential is already built in.

Environmental, social and governance (ESG) risk

The semiconductor sector is medium-risk in terms of ESG. Overall, this risk is managed adequately in Europe and North America but has considerable room for improvement in the Asia-Pacific region. Its reliance on highly-specialised workers means labour relations is one of the key risk drivers. Other risks worth monitoring include resource use, business ethics, product governance, and carbon emissions.

According to Sustainalytics, AMD’s management of material ESG risks is strong.

AMD has relatively low ESG risk relative to both the wider sector and the global stock market. It’s managing its own risk well; with board level oversight, strong environmental policies, and a robust whistleblower policy. There are also no ongoing events that pose a financially material risk to the business.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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