UBS: AMD raises 2027 server growth guidance as data centers offset PC weakness

What changed in third-quarter results and fourth-quarter guidance?

AMD’s third-quarter revenue was 13.4 billion dollars, approximately 2% above UBS and consensus estimates. Data center revenue was 2% above UBS’s estimate, while client revenue was 2% below it.
Third-quarter earnings per share were 2.09 dollars, above UBS’s estimate of 2.00 dollars and the consensus estimate of 1.95 dollars. Gross margin matched UBS’s estimate, while operating expenses were approximately 75 million dollars below its estimate.
The midpoint of the company’s fourth-quarter revenue guidance was 17 billion dollars, broadly in line with UBS’s model and above the consensus estimate of approximately 16.3 billion dollars. UBS believes server CPU growth strongly offset weakness in the client business.

AMD expects total revenue to grow by more than 80% in 2027 and has raised its server CPU revenue growth guidance from over 70% to over 100%. The company expects data center GPU revenue to grow significantly faster than server CPU revenue. It also expects data centers to account for more than 80% of total revenue in 2027.
Third-quarter cloud and enterprise server CPU revenues each more than doubled year over year, with growth driven mainly by shipments and core counts rather than average selling prices. UBS expects server CPU revenue to rise from approximately 17 billion dollars in 2026 to nearly 40 billion dollars in 2027.
UBS believes AMD has greater flexibility in wafer and packaging substrate supply: both client and server products use the N2 process, and substrate sources are more diversified, helping it shift capacity toward the stronger-demand server market. However, server CPU demand still exceeds supply, and the company is seeking more capacity.
Data center GPU revenue was slightly above 3.5 billion dollars in the third quarter. As MI455X and Helios shipments to customers ramp up, together with additional supply, UBS believes the business can generate over 400 hundred million dollars in revenue in 2027, exceeding full-year server CPU revenue.

AMD’s PC end-market sales weakened at the end of the third quarter, and the channel is working through inventory. The company is therefore managing channel shipments more closely in line with end demand. It expects client revenue to fall by more than 20% sequentially in the fourth quarter and by another 10% in the first quarter of 2027. UBS believes the adjustment could continue through the first half of 2027.
Fourth-quarter gross margin guidance is 55%, down approximately 1 percentage point sequentially. Reasons include the rapid ramp-up of data center GPUs, whose gross margin is below the company average. UBS expects approximately 30 billion dollars in incremental GPU revenue in 2027, compared with approximately 20 billion dollars for server CPUs.
Despite the rising GPU mix, management still considers the fourth quarter a reasonable reference for the gross margin in 2027 and expects it to remain around 55%–56% next year. UBS believes passing on some high-bandwidth memory and component costs through long-term customer agreements helps support gross margin.

UBS raised its adjusted earnings per share forecast for 2027 from 17.58 dollars to 18.61 dollars, and its forecast for 2028 from 26.94 dollars to 29.83 dollars.
UBS maintained its buy rating but lowered its 12-month price target from 730 dollars to 700 dollars. It reduced the valuation multiple applied to forecast 2028 earnings per share from 27 times to 23 times to reflect semiconductor industry multiple compression.