AMD's Record Q4 Growth Clouded by One-Time Gains and High Valuation Risks

What happened

AMD reported record Q4 2025 results with data center revenue surging 39% year-over-year and free cash flow jumping 91% to $2.1 billion, driven by strong AI accelerator demand. However, the DeepValue report reveals that this growth was flattered by $390 million in one-time MI308 sales to China and a $360 million inventory reserve release, which inflated margins and will not repeat. The stock trades at elevated multiples of 78x trailing P/E and 91x EV/EBITDA, pricing in sustained high growth that may be challenged by export controls and Nvidia's entrenched dominance. Recent filings indicate that AI partnerships with OpenAI and Oracle lack contractual minimums, exposing AMD to demand volatility and execution risks. Despite the strong headline numbers, underlying profitability remains fragile due to regulatory headwinds and competitive pressures, making the current valuation unattractive for new investment.

Implication

The high multiples imply perfect execution of AI growth, but export charges and competitive risks suggest downside. Data Center growth needs to remain above 30% annually to justify the stock price, yet one-time benefits mask underlying trends. New AI deployments must accelerate without further regulatory hiccups to support share gains. Investors should monitor Q1 2026 results for organic growth signs and consider trimming positions if growth decelerates. The attractive entry point remains near $165, aligning with the bear case scenario.

Thesis delta

The positive Q4 results do not materially alter the investment thesis, as the underlying risks of export controls, competitive pressures, and high valuation persist. The one-time benefits in the quarter underscore the fragility of current growth, reinforcing the need for caution until sustainable AI ramp evidence emerges.