The most sought-after second choice in artificial intelligence has one problem
Revenue up by half, profit above estimates, data center segment doubled, outlook half a billion above expectations. And the stock fell nine percent after the results. It sounds absurd, but the market had its reason, and that reason hides in a single number that refused to grow. It is precisely around it that the dispute revolves over whether AMD has another 160 percent upside ahead, as one analyst claims, or rather a hard reality check.
Key points
In the second quarter of 2026, AMD raised revenue by 50 percent to $11.54 billion and profit beat estimates, yet the stock fell roughly 9 percent after the results.
The reason for the drop was one thing: gross margin. The company estimates it at roughly 56 percent for the next quarter, unchanged, even though it is selling increasingly expensive chips for artificial intelligence.
The data center segment doubled revenue to $6.72 billion and is now the clear engine of the entire company.
Baird analyst doubled his target price to $1,250, which means about 160 percent upside. But this is an isolated extreme; the average market target is around $613.
The stock has risen 125 percent this year and 162 percent over the year. Even after the recent decline, it remains one of the best-performing large names of the year, which raises the cost of any stumble.
Rarely does the market punish a company for beating absolutely everything. AMD experienced exactly that. In the second quarter of 2026, it delivered results most companies can only dream of: revenue up by half, profit above estimates, data center business doubled, and guidance notably above Wall Street expectations. The reaction? The stock fell nine percent in a flash. Investors who only hear headlines scratched their heads.
The explanation exists, and it is crucial for understanding the whole stock. The market did not look at how many chips AMD sold, but at how much it keeps from each chip sold. And here came the disappointment. Gross margin—the share left after deducting manufacturing costs—is not expected to rise according to the company's own guidance and should remain around 56 percent. That would not matter for a company selling cheap goods. But AMD was supposed to raise prices, because it is transitioning to more expensive and powerful chips for artificial intelligence, where the market expected fatter margins. Yet they are not coming, at least not yet.
And this is the source of today's entire dispute over the stock. On one side stand enthusiasts, including Baird bank analyst, who doubled his target price to $1,250, about 160 percent above today. On the other side stands the market, which knocked the stock down after results because it does not yet see evidence that rising revenue will turn into rising profit. Both sides argue over one single thing: margins.
Therefore, the question for investors is not whether AMD is growing, because it is growing hugely. It is different. Will revenue growth turn into profit growth, or will AMD remain the eternal number two that collects volume but leaves fat margins to someone else? And how much of the promised miracle is already paid for in a price that jumped 162 percent in a year?