AMD's AI Progress Confronts Valuation and Execution Headwinds

What happened

A recent Seeking Alpha article advocates for AMD as a buy, citing its role as an AI infrastructure runner-up with strong Q3 2025 revenue of $9.25 billion, up 35.6% year-over-year, driven by data center, client, and gaming segments. Strategic advancements highlighted include the first N2 process GPU, a multi-year OpenAI partnership, and ROCm 7 software to challenge Nvidia's dominance. However, the DeepValue master report reveals that AMD's stock trades at around $206 with a P/E above 100, significantly above a DCF-derived intrinsic value of ~$83, indicating market expectations for aggressive AI success are already embedded. The report notes persistent risks such as fierce competition from Nvidia, export-control overhangs that caused an $800 million MI308 charge, and supply-chain constraints in advanced packaging and HBM. Thus, while operational momentum is robust, the valuation-driven risk/reward remains unattractive without clear evidence of sustained AI share gains or margin expansion.

Implication

AMD's record Q3 revenue and strategic AI partnerships, including with OpenAI, bolster its long-term growth narrative in data centers, positioning it as a credible alternative to Nvidia. However, the stock's premium valuation reflects optimistic assumptions about AI market share, leaving little margin of safety if execution stumbles due to supply-chain bottlenecks or competitive pressures. Export controls have already triggered substantial inventory charges, highlighting geopolitical vulnerabilities that could constrain future revenue from key markets like China. Moreover, AMD's software ecosystem, including ROCm, remains in catch-up mode against Nvidia's entrenched CUDA, increasing dependency on flawless hardware rollouts and customer adoption. Therefore, while the fundamental story is compelling, investors should prioritize monitoring data center segment performance, valuation normalization, and regulatory developments before considering a buy, aligning with the DeepValue report's WAIT judgment.

Thesis delta

The new article reinforces AMD's growth trajectory and AI initiatives, but it does not alter the core thesis from the DeepValue report, which emphasizes that high valuation and persistent risks necessitate caution. No shift in investment stance is warranted; instead, the news underscores the need for continued vigilance on execution metrics and market dynamics before any upgrade to a buy recommendation.