AMD's AI Ambition vs. Margin Pressures: Is the $115 Target Within Reach?

AMD’s Q1 2025 results underscore its transformation into a dominant player in AI-driven computing, but the path to sustaining this momentum—and justifying its $115 price target—is fraught with near-term challenges. As the June 12 “Advancing AI 2025” event approaches, investors must weigh AMD’s strategic positioning against margin headwinds and the critical role of its new MI355X GPU in bridging the gap with NVIDIA. Here’s why this stock remains a compelling buy, despite the risks.

The Near-Term: Growth vs. Margin Pressures

AMD’s Q1 revenue surged 36% year-over-year to $7.44 billion, driven by a 57% jump in data center sales fueled by AI infrastructure demand. Its client segment also thrived, with PC chip sales up 68%, thanks to premium Ryzen CPUs like the Ryzen 9 9950X3D. Yet margins face headwinds. The $800 million inventory charge tied to U.S. export restrictions on its MI308X GPUs to China dragged Q2 gross margins to ~43%, down from 54% in Q1. Analysts project margins to rebound as this one-time charge unwinds, but the full-year revenue hit from these restrictions—estimated at $1.5 billion—remains a drag.

The Long Game: AI as the Catalyst

AMD’s valuation hinges on its ability to translate AI leadership into sustained market share. The June 12 event will spotlight its MI355X GPU, a CDNA4-based chip designed to compete directly with NVIDIA’s H100/H200 series. Key specs include 288GB of HBM3e memory and 8TB/s bandwidth, enabling support for 4.2 trillion-parameter models—a capacity unmatched by its prior generations. This GPU pairs with AMD’s 5th Gen EPYC 9005 CPUs (up to 192 cores) to create hybrid CPU-GPU systems, ideal for large-scale AI training.

Analysts like TD Cowen’s Joshua Buchalter see the MI355X as critical to AMD’s $115 price target, which assumes a 20x multiple on 2026 EPS. The chip’s success could offset export-related losses and validate AMD’s 22% FY2025 revenue growth projections, which rely heavily on data center and client segments.

The Risks: Can AMD Close the Software Gap?

While AMD’s hardware specs are competitive, NVIDIA’s dominance in software ecosystems remains a hurdle. AMD’s ROCm platform still lags in features like disaggregated prefill and lacks first-class Python support, which are table stakes for developers. Meanwhile, NVIDIA’s Dynamo framework and CUDA ecosystem continue to attract hyperscalers. AMD’s recent hires—like AI Software Czar Anush Elangovan—and plans for a “developer-first” cloud service aim to close this gap, but execution is unproven.

The Bottom Line: Buy the Dip, but Watch June 12

AMD’s stock trades at 16.5x forward EPS, a discount to its five-year average and NVIDIA’s 30x multiple. The 22% revenue growth target is achievable if the MI355X wins hyperscaler contracts (e.g., Oracle’s multi-billion-dollar deal) and soft PC demand stabilizes. The June event is the linchpin: clear technical wins for the MI355X and updates on software partnerships could lift sentiment, while underwhelming results could test the $115 target.

Investors should buy on dips below $100, as AMD’s balance sheet ($7.3B cash, $4B buyback capacity) and diversified product portfolio (data center, gaming, embedded) provide a safety net. The MI355X’s success could make the $115 target—and beyond—a reality by year-end. Stay tuned for June 12—it’s AMD’s AI moment.

Action Item: Buy AMD shares at current levels, with a $95 stop-loss, and set a $115 target tied to post-June event catalysts.