Advanced Micro Devices
Second-source tollbooth on AI compute with improving software but a cautious entry price
Advanced Micro Devices is a diversified, fabless semiconductor designer spanning data center CPUs and AI accelerators, client CPUs and GPUs, and adaptive/embedded products.
The AI cycle is a powerful tailwind: AMD posted record quarterly revenue of 7.685 billion in Q2 2025 and guided to 8.7 billion for Q3, even while absorbing roughly 800 million of inventory and related charges tied to new U.S. export restrictions on MI308 shipments to China.
TTM revenue is approximately 29.6 billion, calculated from FY2024 revenue plus H1 2025 less H1 2024. Free cash flow is also inflecting, with Q2 free cash flow of 1.18 billion and H1 2025 free cash flow of 1.91 billion. Our TTM free cash flow estimate is about 3.5 billion.
Strategically, AMD has become the credible second source to Nvidia in AI accelerators, while continuing to gain x86 CPU share in servers and desktops.
The acquisition of ZT Systems in March 2025 aims to accelerate system-level AI offerings, with the manufacturing portion already agreed to be divested to Sanmina for about 3 billion, leaving AMD with design talent and IP.
Software is the critical battleground: AMD’s ROCm 7 and the AMD Developer Cloud broaden framework support and developer access, but CUDA’s entrenched network effects remain a headwind.
Financially, AMD retains a net cash position and expanded buyback authorization to 10 to 14 billion, signaling confidence and helping offset dilution, though stock-based compensation and share issuance tied to acquisitions bear monitoring.
Overall quality is high, but we would insist on a disciplined entry multiple on TTM free cash flow given cyclicality, export controls and fierce competition. Note: AMD is listed on Nasdaq (not NYSE).
Does Advanced Micro Devices have a strong competitive moat?
Moat sources are multi-pronged but not indestructible. Intangible assets include x86 architecture expertise and a patent and cross-licensing base built over decades, plus a fast-improving AI software stack (ROCm) and developer cloud that lower switching friction from CUDA.
Switching costs exist in enterprise CPU platforms and embedded FPGAs, and are emerging in AI systems as hyperscalers validate MI300/MI350 at scale. Cost advantages come from design scale and close foundry partner alignment.
Efficient scale is present in certain niches like console semi-custom and HPC where AMD powers the top two supercomputers and 172 systems on the Top500 list. Risks to durability: Nvidia’s stronger network effects in CUDA, hyperscaler custom silicon, export controls, and reliance on TSMC for leading-edge nodes.
Net-net, we assess a narrow-to-strong-narrow moat that could widen if ROCm adoption continues and system-level offerings mature.
Does Advanced Micro Devices have pricing power in its industry?
AMD demonstrates improving pricing power in data center CPUs and semi-custom, and could benefit from AI accelerator scarcity. However, Nvidia retains superior pricing power at the high end of AI GPUs given CUDA lock-in.
AMD’s own non-GAAP gross margins reached 53 percent in FY2024 and would have approximated mid-50s in Q2 2025 absent China-related charges, suggesting underlying pricing potential as mix shifts toward EPYC and Instinct.
The new MI350 series and Helios rack-scale solutions may enhance system-level value capture, yet we still discount the score due to competitive intensity and hyperscaler bargaining power.
How predictable is Advanced Micro Devices's business?
Recurrence is improving, but semis remain cyclical. AMD’s embedded and adaptive (Xilinx) portfolio adds steadier revenue streams, and data center CPU and accelerator demand offers secular growth. Still, PC and gaming cycles, hyperscaler digestion, export restrictions, and supply chain risks introduce variability.
Q2 2025’s large China-related inventory charge underscores sensitivity to policy. We expect multi-year growth powered by AI, but we do not underwrite the same tollbooth-like predictability as card networks or software utilities.
Is Advanced Micro Devices financially strong?
AMD’s balance sheet is robust. As of Q2 2025, cash and short-term investments were about 5.9 billion against long-term debt of roughly 3.2 billion, leaving net cash and ample flexibility.
TTM free cash flow is about 3.5 billion, with record quarterly free cash flow in Q2 2025. Purchase commitments to foundry and packaging partners and working-capital swings are manageable given scale and liquidity. Supplier concentration at advanced nodes and geopolitical exposure are the principal structural risks.
How effective is Advanced Micro Devices's capital allocation strategy?
Management has prioritized high-return organic R&D, targeted M&A to strengthen AI software and systems (Nod.ai, Silo AI, ZT Systems), and disciplined buybacks.
In 2024 AMD repurchased about 862 million of stock and in 2025 expanded authorization by 6 billion, with 1.2 billion repurchased in H1 2025. The ZT Systems deal is nuanced: AMD keeps design/IP and has agreed to divest the manufacturing business to Sanmina for ~3 billion, aiming to stay asset-light while accelerating system-level capability.
SBC is material but balanced by repurchases. We score capital allocation as strong but not exemplary given integration risk and dilution from acquisition-related share issuance.
Does Advanced Micro Devices have high-quality management?
Dr. Lisa Su’s turnaround and execution track record are outstanding, with sustained share gains against larger incumbents and timely pivots into AI. Insider alignment is good: the 2025 proxy shows Dr. Su beneficially owning roughly 4.7 million shares. The broader team has deep CPU, GPU, adaptive, and software expertise.
Governance is standard for a large-cap U.S. tech, with independent board majority and shareholder-friendly capital returns.
Is Advanced Micro Devices a quality company?
Advanced Micro Devices is a good quality company with a quality score of 79/100
- AI ramp is real but uneven: record Q2 2025 revenue and a strong Q3 guide were partially masked by an 800 million China-related charge; excluding that, non-GAAP gross margin would have been about 54 percent.
- TTM fundamentals: revenue about 29.6 billion and free cash flow about 3.5 billion using FY2024, H1 2025 and H1 2024 reported figures.
- Ecosystem progress: Advancing AI 2025 introduced MI350, Helios rack-scale designs and ROCm 7; partners span Meta, OpenAI, xAI, Microsoft, Oracle, Cohere and Red Hat, but CUDA’s network effects are still formidable.
- Share gains continue: Mercury Research shows AMD server CPU unit share around 27 percent and desktop share above 30 percent in Q2 2025.
- Balance sheet and capital returns: Q2 2025 cash plus short-term investments 5.9 billion vs long-term debt 3.2 billion; new 6 billion authorization lifted total repurchase capacity to roughly 10 to 14 billion.
What is the fair value of Advanced Micro Devices stock?
Is Advanced Micro Devices a good investment at $204?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.