AMD reports record training GPU demand but faces margin pressure from inference compute cost deflation and customer custom silicon adoption.
AMD faces a paradoxical moment in the market. Despite posting its strongest quarter on record, the stock has retreated sharply, reflecting investor unease over margin pressure and competitive positioning in AI chips.
Second-quarter results, reported Tuesday, showed revenue of $11.54 billion, a 50.1 percent year-over-year surge, with net income of $2.3 billion. Both figures exceeded analyst expectations, and third-quarter guidance of $12.7 billion to $13.3 billion topped the $12.5 billion consensus. The data-center segment, powered by EPYC server processors and Instinct accelerators for AI training, nearly doubled to $6.7 billion, a 107 percent increase. CEO Lisa Su projected server revenue growth of 80 percent in the second half, with data-center sales expected to more than double by 2027 on over 70 percent annual growth.
The disappointment lay in margins. Gross margin came in at 54 percent, below the 56 percent analysts had anticipated, as the ramp of the Helios AI infrastructure program created near-term costs. Capital expenditures also surprised to the upside, ballooning to $808 million from earlier estimates of $298 million. The after-hours reaction was severe, with the stock dropping more than 8 percent.
External pressures compounded the sell-off. On Wednesday, Elon Musk announced that SpaceX would exclusively use Nvidia's AI chips, citing the competitor's "best architecture" and emphasizing partnership depth. Nvidia shares rose; AMD's fell. Su responded diplomatically on CNBC, expressing "enormous respect" for Musk while outlining a long-term partnership vision.
Two days later, AMD announced the acquisition of Taalas, a startup developing AI inference chips—the segment where trained models are deployed and run operationally. Su has identified inference as the real scaling opportunity ahead. Taalas's HC1 chip reportedly processes 16,960 tokens per second, ahead of established competitors by internal measures. The deal complements the Helios AI rack system AMD unveiled at CES 2026, signaling an effort to build architectural advantages in compute power and energy efficiency rather than following Nvidia's lead.
Analysts responded with widespread target-price revisions. Rosenblatt Securities raised its target to $700 from $665, while Argus Research jumped to $625 from $450. Jefferies and Truist had already revised upward the previous day. Early August consensus stood near $579—roughly 22 percent above the prevailing price—with individual targets reaching as high as $1,250. Of analysts covering the stock, 36 rate it Buy, five rate it Outperform, and ten are at Hold, with zero Sell recommendations. The consensus target of €500.90 implies upside of nearly 20 percent from the week's close.
Longer-term performance tells a more forgiving story: the stock is up 127.15 percent year to date and 182.59 percent over twelve months. Recent weakness looks less like a reversal than consolidation after steep gains. Insider selling over the past 90 days totaled roughly $15.37 million net, a caution flag, though new institutional investors including Legacy Wealth Management and Chemistry Wealth Management have taken positions, suggesting professional capital still believes in the growth narrative. The relative strength index sits at 46.0, neutral territory. The 50-day moving average of €448.66 sits 6.83 percent above the current price, while the 100-day moving average at €365.72 represents solid support.
Macro factors will dominate the coming week. US inflation data on August 12 and producer prices on August 13 carry direct implications for September rate expectations; high-beta semiconductor names like AMD tend to overreact to such releases. Applied Materials also reports on August 13, offering a broader read on chip supply-chain health.
The fundamental question is whether growth alone satisfies investors who now demand growth, margin expansion, and visible competitive wins. The Taalas acquisition addresses the first two. The SpaceX episode underscores how fragile competitive positioning remains. For now, evidence points to consolidation rather than trend reversal—record results, aggressive AI-chip expansion, and a valuation cool enough to attract fresh institutional interest. Whether that sustains depends on how convincingly 2027 promises translate into quarterly reality.