AMD’s Record Run Faces a Margin Squeeze — Can the OpenAI Deal Save the Day?

AMD enters earnings week at an all-time high, but margin pressure and China revenue drop challenge the stock's lofty valuation ahead of Q1 results.

Advanced Micro Devices enters earnings week with a stock market valuation that has left even its most ardent supporters scrambling for justification. The chipmaker’s shares closed at €302.15 on Friday, a fresh all-time high, after a blistering April that saw the stock surge 74.3 percent. For context, arch-rival Nvidia managed a 14.4 percent gain over the same period. But as the company prepares to report first-quarter results on May 5, the euphoria is colliding with a sobering reality: profitability is under pressure, and the stock’s price tag is getting harder to defend.

The headline numbers due Tuesday look solid enough. Analysts expect revenue of roughly $9.85 billion, a 32 percent year-over-year increase, with earnings per share forecast to land between $1.24 and $1.30. The data center segment — which posted a record $5.38 billion in the fourth quarter — remains the star performer, driven by Instinct MI350 accelerators and EPYC server processors. But beneath the surface, the margin story is giving investors pause.

Management has guided for gross margin to slip to 55 percent in the first quarter, down from 57 percent in the prior period. That earlier figure was flattered by a one-time inventory liquidation of certain graphics chips, a benefit that has now evaporated. At the same time, AMD’s China business is contracting sharply. Revenue from MI308 accelerators in the region is expected to drop from $390 million to just $100 million, removing a key driver of margin expansion.

The analyst community is increasingly split on what this means for the stock. DA Davidson recently raised its price target to $375 and upgraded the shares to “Buy,” arguing that a structural shift in AI demand is playing into AMD’s hands. The thesis: as the industry moves from training AI models to running them in production — so-called inference workloads — the hardware mix is changing. Demand for traditional central processing units is rising, and AMD’s EPYC server chips are well positioned to capture that wave. Bernstein and Citi have also lifted their revenue and profit forecasts.

But not everyone is convinced. Northland Capital Markets downgraded the stock to “Market Perform” with a $260 target, pointing to a price-to-earnings ratio of 133 that it says is unsupported by current fundamentals. The average analyst price target stands at roughly $304, meaning AMD is already trading well above Wall Street’s consensus view. The relative strength index sits at 79.26, deep in overbought territory.

The real test, however, may come from the second-half outlook. AMD’s supply agreement with OpenAI for new graphics chips is set to begin in the latter part of 2026, and the company’s Helios platform is gaining traction with partners including HPE and Lenovo. Oracle has announced plans to launch a public AI supercluster built on the architecture. Investors will be watching closely for concrete details on production capacity and delivery timelines — without them, the stock’s elevated valuation looks increasingly precarious.

Beyond the immediate earnings release, the market has another catalyst on the calendar. On July 23, AMD will host its “Advancing AI 2026” event in San Francisco, where it is expected to unveil details on the MI450 accelerator and its 2-nanometer EPYC processors. The event could provide the next leg of the rally — or deflate expectations if the announcements fall short of what the market has already priced in.

For now, all eyes are on Tuesday’s report. AMD has delivered a historic run, but the margin squeeze and the widening gap between the stock price and analyst targets mean the company must prove that its AI pipeline can compensate for near-term headwinds. The facts will land after the US market close on May 5 — and the reaction will determine whether this rally has legs or has simply run too far, too fast.