Bernstein: AMD’s third-quarter data center strength offsets PC weakness; fourth-quarter guidance beats expectations

What drove the third-quarter beat?

AMD reported third-quarter 2026 revenue of 13.377 billion dollars, above the market consensus of 13.075 billion dollars; adjusted earnings per share were 2.09 dollars, above the consensus of 1.97 dollars. Data center and gaming were the main sources of the revenue beat.
Data center revenue was 8.546 billion dollars, up 97% year over year and 27% sequentially, above the market consensus of 8.191 billion dollars. Both server CPUs and data center GPUs contributed. Bernstein estimates that GPU revenue accounted for about 3.5 billion dollars, close to market expectations of about 3.6 billion dollars.
The earnings beat did not come from better-than-expected gross margin: non-GAAP gross margin was 55.9%, down about 0.3 percentage points sequentially and close to the consensus and company guidance of about 56%; adjusted operating expenses were 3.56 billion dollars, below the consensus of 3.653 billion dollars.

The midpoint of AMD’s fourth-quarter revenue guidance is 17 billion dollars, plus or minus 3%, above the market consensus of 16.3 billion dollars and implying sequential revenue growth of about 27%. Bernstein calculates adjusted earnings per share of about 2.92 dollars on that basis, versus market consensus of 2.67 dollars.
Growth is coming mainly from data center. The company expects the business’s revenue to rise more than 50% sequentially; Bernstein estimates it will reach about 12.8 billion dollars, above the market consensus of about 11.5 billion dollars. That implies sequential growth of more than roughly 90% in AI GPU revenue, which could reach about 7 billion dollars and exceed server CPU revenue.
The PC business is moving in the opposite direction: management said memory shortages were affecting end demand and PC retail sales slowed at the end of the third quarter. Based on the guidance, Bernstein estimates fourth-quarter client revenue will fall more than 20% sequentially to about 2.36 billion dollars, below the market consensus of about 3 billion dollars.
Fourth-quarter non-GAAP gross margin guidance is about 55%, below the market consensus of 55.5%; operating expense guidance is about 3.75 billion dollars, below the consensus of 3.982 billion dollars.

AMD expects total company revenue to grow more than 80% in 2027, server revenue to double year over year, and data center to account for more than 80% of total revenue, up from about 65% in 2026. On that basis, Bernstein estimates data center revenue at about 80 billion dollars, including GPU revenue of about 40 billion to 45 billion dollars, nearly tripling year over year, driven by the ramp-up of MI450 and Helios products.
The company believes it has secured the supply needed to reach that scale, and demand remains higher than supply; revenue could rise further if it secures more supply. Meanwhile, Helios racks began ramping up at scale, and inventory rose to 11.463 billion dollars at the end of the third quarter from 8.468 billion dollars in the preceding quarter, while inventory days rose from 151 to 175.
Cash flow also weakened: third-quarter operating cash flow was 1.202 billion dollars, down from 2.366 billion dollars in the second quarter; free cash flow after capital expenditure fell from 1.558 billion dollars to 554 million dollars.

Bernstein raised its 2027 revenue forecast from 93.8 billion dollars to 97 billion dollars, and its adjusted earnings per share forecast from 15.82 dollars to 16.88 dollars, mainly because of a higher server CPU revenue forecast; its 2027 AI GPU revenue forecast remains at 43 billion dollars.
The firm maintained its 650-dollar price target and Outperform rating. Its valuation uses a multiple of approximately 31 times the 20.83-dollar average of forecast adjusted earnings per share for 2027 and 2028, down from the previous multiple of approximately 34 times.