Buy earnings selloff in AMD stock: Wells Fargo

Wells Fargo reiterated its Overweight rating and $185 price target on Advanced Micro Devices (AMD), viewing the recent premarket pullback as a buying opportunity. The firm expressed confidence in AMD's data center GPU roadmap, particularly the MI355X ramp, and highlighted strong performance in server CPU revenue, which grew 30% year-over-year to $2.2 billion, significantly outpacing Intel. Despite a 13% year-over-year decline in Q2 data center GPU revenue to $915 million due to the China ban, Wells Fargo remains bullish on the company's product mix shift and robust client computing growth, with Q3 revenue guidance of $8.4-$9.0 billion indicating continued strong momentum.

Analysis

Wells Fargo has reaffirmed its Overweight rating and $185 price target on Advanced Micro Devices, framing the recent stock pullback as a buying opportunity. The firm's positive outlook is anchored by significant momentum in AMD's core segments, notably a 30% year-over-year surge in server CPU revenue to approximately $2.2 billion, which starkly outpaces Intel's 4% growth in its comparable division. Further bolstering this view is the exceptional performance in client computing, where revenue jumped 69% year-over-year to $3.62 billion, driven by a 67% rise in client CPU revenue and a 42% increase in average selling prices (ASPs). While second-quarter data center GPU revenue saw a 13% year-over-year decline to $915 million, attributed to the China export ban, Wells Fargo anticipates a strong second-half ramp for the next-generation MI355X chip. The company's third-quarter revenue guidance of $8.4 to $9.0 billion, implying a 28% increase at the midpoint, and a gross margin target of 54%, underpins this confidence. A key variable remains the potential for MI308X sales to China, which are currently excluded from guidance pending licensing approval.

Key Decisions for Investors

• Investors could consider the current share price weakness as a potential buying opportunity, given the fundamental strength demonstrated by 30% growth in the server CPU segment and 69% growth in client computing.
• Monitor any developments related to U.S. licensing for MI308X chip sales to China, as an approval would provide a material upside catalyst not currently factored into the company's Q3 guidance.
• Continue to evaluate AMD's server CPU revenue growth relative to Intel's performance, as continued market share gains in this high-margin segment are a critical component of the bull thesis.