AMD's MI350 AI Accelerator Gains Hyperscaler Backing, But Valuation Remains Extreme

What happened

AMD's MI350 AI accelerator, launching mid-2025 with claimed 35x inference gains and 288GB HBM3E memory, has secured deployment commitments from Microsoft, Meta, and OpenAI, bolstering its role as a secondary supplier in the AI market. This aligns with SEC filings showing AMD's data center revenue nearly doubled to $12.6B in 2024, driven by EPYC CPUs and Instinct accelerators, while ROCm software progress narrows the ecosystem gap with Nvidia. However, the DeepValue report notes AMD's stock has surged ~73% in 12 months and trades at ~106x P/E and ~66x EV/EBITDA, with a DCF implying intrinsic value an order of magnitude below the current price. Filings warn of high sensitivity to AI cycles, foundry constraints like CoWoS capacity, and intense competition from Nvidia and Arm-based silicon, leaving little margin for error. Thus, while the MI350 news validates execution, it does not mitigate the overvaluation risks already embedded in the market's expectations.

Implication

The MI350 commitments confirm AMD's traction with hyperscalers, but Nvidia's dominance in AI accelerators and supply chain bottlenecks could limit meaningful share gains. Financial filings show strong free cash flow and ~50% gross margins, yet the stock's premium multiples suggest years of flawless AI execution are priced in, per the DeepValue report. Any slowdown in AI capex, execution missteps on ramps, or increased competition could trigger sharp de-rating given the high expectations. Investors must closely monitor data center revenue growth and competitive positioning against Nvidia and Intel, as highlighted in the report's watch items. Overall, this news supports the growth narrative but does not justify new capital at current levels without a significant correction.

Thesis delta

The MI350 news reinforces AMD's AI accelerator progress and customer wins, aligning with the report's observation of strong fundamental momentum. However, it does not address the core valuation concerns or competitive risks that underpin the 'WAIT' stance, leaving the investment thesis unchanged.