Thesis status: Affirmed on the ramp's first leg, with no condition weakening. Free cash flow fell as the ramp began, and the commitments behind it sit in no condition.
This is Memo Update No. 2 to the AMD second-platform primer, after Memo No. 1 on 2Q26. The primer asks whether AMD ($AMD) converts the Instinct accelerator cycle into a durable second platform in data-centre infrastructure at a pace consistent with what the share price requires, over FY2026 to FY2028. This memo covers the third-quarter results released on 3 November 2026 and the Form 10-Q for the quarter ended 26 September, valued at the 10 November close.
Key Takeaways
- Third-quarter revenue of $13.4B rose 45% year on year and came in above the top of the guidance range, with Data Center revenue of $8.5B up 97%. MI450 Series GPUs and Helios racks shipped for revenue for the first time. Management guided fourth-quarter revenue to about $17B, with Data Center up about 50% on the quarter, and stated it expects FY2027 revenue to grow more than 80%, against 56% on the model's path.
- Server revenue still led the segment year on year. Management stated cloud and enterprise server sales each more than doubled, so the rest of Data Center, Instinct included, grew by less than the segment's 97%. Management guides Data Center AI revenue above server revenue in the fourth quarter and server revenue to double in FY2027. Client and Gaming is guided down more than 20% in the fourth quarter, and management plans for PC market unit shipments to fall by a double-digit percentage in FY2027.
- Free cash flow fell to $554M, a second consecutive decline, as inventory rose $3.0B and receivables $1.9B. Accounts payable supplied 96% of nine-month free cash flow, and LTM free cash flow fell to 0.84 times GAAP operating income from 1.19 times at Memo No. 1. Unconditional purchase commitments reached $48.8B from $12.2B at the FY2025 year-end. The 10-Q also discloses up to $8.5B of guarantees of partners' leases and debt, up to $6.2B of cloud capacity commitments and $13.3B of data-centre leases AMD expects to pass to partners, with no partner in default. The purchase commitments add exposure, and they are also consistent with the FY2027 guide.
- At the 10 November close of $510.95 the price requires a 53.6% flat EBIT margin from FY2027 on the model's growth path, or 31.2% annual revenue growth to FY2035 on its margin path. On Memo No. 1's own series the requirement reads 30.5% against 30.7% in August: the larger revenue base and margin took 1.5 points off, and the higher price and discount rate put 1.3 back. EV rose to 124.3 times LTM free cash flow from 104.7 times. Moving FY2027 to the guide's floor lowers the flat requirement by 7.2 points, and holding conversion at its LTM level raises it by 9.0.
- One condition stands Affirmed and six Developing, with none Weakening. C1 and C4 improved as MI450 revenue began and brought the first warrant accounting with it, while OpenAI's first gigawatt remains undated and no warrant share has vested. C5 improved as Helios moved into deployment, and C2 and C6 deteriorated. The warrants held by OpenAI and Meta ($META) cover up to 320M shares, and full vesting would raise the flat requirement to 64.2% on the model's path, or 55.6% with the guided FY2027.
| Memo No. 1 | Memo No. 2 | |
|---|---|---|
| Metric | 2Q26 | 3Q26 |
| Revenue | $11,536M | $13,377M |
| Data Center revenue, year on year | 107% | 97% |
| Data Center share of revenue | 58% | 64% |
| Data Center operating margin | 31.3% | 33.7% |
| Non-GAAP gross margin | 56.2% | 55.9% |
| GAAP operating income | $1,990M | $2,832M |
| Free cash flow | $1,558M | $554M |
| Free cash flow excluding the payables movement | ($716M) | ($1,759M) |
| LTM free cash flow, multiple of LTM GAAP operating income | 1.19x | 0.84x |
| Inventory days | 145 | 170 |
| Payable days | 92 | 115 |
| Net cash | $9,885M | $8,697M |
| Share price at the mark | $494.16 | $510.95 |
| EV / LTM GAAP operating income | 124.8x | 104.3x |
| EV / LTM free cash flow | 104.7x | 124.3x |
| Required revenue CAGR at a 29% terminal margin, Memo No. 1 series | 30.7% | 30.5% |
Third-Quarter Results
Revenue came in $377M above the guidance midpoint, and Data Center supplied $1,828M of the $1,841M sequential increase (Exhibits 2 and 4). Non-GAAP gross margin matched the guide of about 56%, and non-GAAP operating expenses came in $90M below it, so non-GAAP earnings per share of $2.09 exceeded the $1.93 the guide implied (derived).
| Metric | 3Q26 | 3Q25 | Y/Y | 2Q26 | Q/Q |
|---|---|---|---|---|---|
| Revenue ($M) | 13,377 | 9,246 | +45% | 11,536 | +16% |
| Non-GAAP gross margin | 55.9% | 54.0% | +190 bps | 56.2% | (30 bps) |
| Non-GAAP operating expenses ($M) | 3,560 | 2,754 | +29% | 3,394 | +5% |
| Non-GAAP operating income ($M) | 3,923 | 2,238 | +75% | 3,094 | +27% |
| GAAP operating income ($M) | 2,832 | 1,270 | +123% | 1,990 | +42% |
| GAAP operating margin | 21.2% | 13.7% | +750 bps | 17.3% | +390 bps |
| GAAP diluted EPS | $1.46 | $0.75 | +95% | $1.38 | +6% |
| Non-GAAP diluted EPS | $2.09 | $1.20 | +74% | $1.66 | +26% |
| Free cash flow ($M) | 554 | 1,530 | (64%) | 1,558 | (64%) |
| Diluted shares (M) | 1,661 | 1,641 | +1.2% | 1,659 | +0.1% |
GAAP earnings carry two items that pull in opposite directions (Exhibit 3). The first remeasurement of the customer warrants cost $1,097M in other expense, and Hu stated the charge is expected to increase as AMD and its customers progress. It moves with the share price, and the 10-Q notes it may produce gains as well as losses in later periods. A $772M discrete tax benefit on stock-based compensation turned the tax line into a benefit, which is why net income of $2,428M exceeds pretax income of $1,868M. Both items are excluded from non-GAAP earnings, and the warrant charge is non-cash.
| Item | Amount ($M) | Per diluted share | The headline it moves |
|---|---|---|---|
| Remeasurement of the customer warrant liability | 1,097 | ($0.66) | Other income (expense), net, of $(902)M. Non-cash, excluded from non-GAAP, expected to grow, moves with the share price |
| Discrete tax benefit on stock-based compensation | 772 | $0.46 | A $555M tax benefit and a (29.6)% tax rate, so net income exceeds pretax income. Excluded from non-GAAP |
| Gains on long-term investments | 67 | $0.04 | Other income. The second quarter carried $483M |
| Warrant grant-date value deducted from revenue | 82 | NA | Reported revenue, which is net of it. Up to $4.5B more to come |
Data Center margin rose to 33.7% with initial MI450 sales in the mix, while Client and Gaming stayed near 15% (Exhibits 4 and 5). Client revenue grew 7% on unit shipments up 6% and average selling price up 1%, and fell 4% on the quarter as, on Hu's account, higher memory costs weighed on PC demand. Gaming fell 40% on lower semi-custom revenue. Embedded grew 29%, which management described as its fourth consecutive quarter of accelerating growth.
| Segment | 3Q25 | 2Q26 | 3Q26 | Y/Y | Q/Q |
|---|---|---|---|---|---|
| Data Center | 4,341 | 6,718 | 8,546 | 97% | 27% |
| Client and Gaming | 4,048 | 3,841 | 3,722 | (8%) | (3%) |
| Client | 2,750 | 3,062 | 2,949 | 7% | (4%) |
| Gaming | 1,298 | 779 | 773 | (40%) | (1%) |
| Embedded | 857 | 977 | 1,109 | 29% | 14% |
| Total | 9,246 | 11,536 | 13,377 | 45% | 16% |
Outlook
Management guided fourth-quarter revenue to about $17B, up 27% on the quarter, with Data Center up about 50%, Client and Gaming down more than 20% and Embedded up by double digits (Exhibit 6). Those three statements reconcile to the total at a Data Center figure of about $12.8B, 75% of revenue (derived). Non-GAAP gross margin is guided down to about 55%, which Hu linked to Data Center AI revenue, "a little bit dilutive to corporate average", passing server revenue in dollars for the first time.
| 3Q26 | 4Q26 | ||
|---|---|---|---|
| Metric | Guide | Reported | Guide |
| Revenue ($M) | 13,000 | 13,377 | 17,000 |
| Gross margin | 56.0% | 55.9% | 55.0% |
| Operating expenses ($M) | 3,650 | 3,560 | 3,750 |
| Operating income ($M) | 3,630 | 3,923 | 5,600 |
| Diluted EPS ($) | 1.93 | 2.09 | 2.92 |
| Diluted shares (M) | 1,661 | 1,661 | 1,668 |
AMD does not split Data Center revenue between server CPUs and Instinct GPUs, and the disclosures bound the split. Su stated cloud and enterprise server sales each more than doubled, so server revenue grew more than 100% while the segment grew 97%. Everything else in the segment therefore grew by less than 97%, whatever the split. Sequentially, Hu attributed the increase primarily to initial MI450 sales and strong server growth, without sizing either. Data Center AI revenue passing server revenue is guided for the fourth quarter and not yet reported (Exhibit 7).
Every Data Center and company marker management gave for FY2027 rose, and the PC market outlook fell (Exhibit 8). The company figure of more than 80%, the first FY2027 revenue marker, sets a floor of about $93.9B on the FY2026 build, against $81.4B on the model's path. With Data Center above 80% of revenue, the other segments are at most about flat at that floor (derived). Management gave no FY2027 gross margin. Hu called the fourth quarter "a good benchmark" and stated she does not yet have visibility on the mix between server and AI revenue that sets it.
| Marker | 4 August | 3 November |
|---|---|---|
| FY2027 company revenue | No FY2027 figure. Long-term growth "substantially above" the 35% target | More than 80%, a floor of about $93.9B (derived) |
| FY2027 Data Center | "Well over" 100% growth | More than 80% of company revenue, about $75.1B or more (derived) |
| FY2027 server revenue | Above 70% growth | About double, mostly units and core counts |
| FY2027 Data Center AI revenue | "Well over" 100% growth | "Significantly more than double" |
| Data Center AI against server | Not addressed | AI revenue above server revenue from 4Q26 |
| FY2027 operating expenses | Not addressed | Growth less than half of revenue growth |
| FY2027 PC market | Not addressed for FY2027. A softer second half of 2026 | Units down by a double-digit percentage |
| Revenue per gigawatt | "Double-digit billions" | Not restated |
What the Ramp Costs
Earnings and free cash flow moved apart as the ramp began (Exhibit 9).
Three movements explain the gap (Exhibits 10 and 11). Inventory rose $2,995M to $11,463M, 170 days of cost of sales, and the 10-Q attributes the nine-month build primarily to Data Center products in advanced process nodes. Receivables rose $1,928M with revenue. Payables rose $2,313M and payable days doubled in three quarters, which the 10-Q attributes to the timing of payment obligations and higher inventory purchases. That shows free cash flow resting on payables, and it does not evidence any change in supplier terms.
| Line | 2Q26 | 3Q26 | 9M26 |
|---|---|---|---|
| Cash generation before working capital | 3,096 | 4,559 | 10,154 |
| Receivables | (1,246) | (1,928) | (2,894) |
| Inventories | (423) | (2,995) | (3,543) |
| Prepaid expenses and other assets | (683) | (1,070) | (2,061) |
| Accrued and other liabilities | (652) | 323 | 384 |
| Accounts payable | 2,274 | 2,313 | 4,483 |
| Operating cash flow | 2,366 | 1,202 | 6,523 |
| Capital expenditure | (808) | (648) | (1,845) |
| Free cash flow | 1,558 | 554 | 4,678 |
| Free cash flow excluding the payables movement | (716) | (1,759) | 195 |
The build sits upstream of shipment. Finished goods fell to $1,835M from $2,243M at the year-end, while work in process rose to $7,416M (Exhibit 12). Capital expenditure alone no longer measures capital intensity. Capex fell to 4.8% of revenue from 7.0% in the second quarter, while prepayments under supply agreements drove a $2,061M nine-month rise in prepaid and other assets, more than the $1,845M of nine-month capex. The rise in other non-current assets, $4,568M over nine months, is mostly leases and investments, with about $1.2B consistent with prepayment of supply (derived).
| Line | 27 Dec 2025 | 26 Sep 2026 | Change |
|---|---|---|---|
| Inventories | -- | -- | -- |
| Raw materials | 909 | 2,212 | 1,303 |
| Work in process | 4,768 | 7,416 | 2,648 |
| Finished goods | 2,243 | 1,835 | (408) |
| Total inventories | 7,920 | 11,463 | 3,543 |
| Other non-current assets | -- | -- | -- |
| Operating lease right-of-use assets | 790 | 2,200 | 1,410 |
| Long-term investments at fair value | 400 | 1,348 | 948 |
| Non-marketable investments | 1,100 | 1,900 | 800 |
| Equity-method investments | 176 | 306 | 130 |
| Deferred compensation plan | 257 | 329 | 72 |
| All other | 2,729 | 3,937 | 1,208 |
| Total other non-current assets | 5,452 | 10,020 | 4,568 |
Management has guided the build to continue. Hu stated "we expect to continue to invest in inventory and capacity to support our strong growth in 2027", and the $11.2B of commitments due in the rest of FY2026, primarily for supply, exceeds the fourth quarter's implied cost of sales of about $7.7B (derived). The fourth quarter is therefore unlikely to show the inventory reversing.
Cash and short-term investments rose $2,665M to $15.8B on $3,851M of net note proceeds, so before the notes they fell $1,186M (derived). Cash paid for tax withheld on vested equity awards, $1,495M in the quarter, sits in financing and outside free cash flow, and no shares were repurchased for a second quarter. AMD holds an undrawn $5.0B revolving facility and a $5.5B commercial paper programme with nothing outstanding, no debt matures before 2028, and the 10-Q states management's belief that these resources will be sufficient to fund operations, capital expenditure, commitments and strategic activities over the next 12 months and beyond.
Unconditional purchase commitments, primarily for wafers, substrates, memory and assembly, reached $48.8B at 26 September, with $33.4B due by the end of FY2027 (Exhibit 13). The 3Q26 filing reports cloud capacity made available to third parties separately, so the earlier totals may include amounts now shown elsewhere and the comparison is approximate.
The 10-Q describes three further arrangements as supporting "the development of the broader SI infrastructure", SI being AMD's term for superintelligence (Exhibit 14). AMD guarantees $7.7B of commercial partners' data-centre lease obligations and $750M of their borrowings, payable only on a partner's default. It has committed up to $6.2B to buy GPU capacity from cloud providers, either to the extent third parties do not buy it or for capacity it reserves and may sell or assign, and it holds $13.3B of data-centre leases not yet commenced that it expects to assign or sublease to partners. The three differ in kind and are stated at maximum, undiscounted amounts, so their sum of about $28B (derived) measures scale, while the cost to AMD depends on defaults and assignments the filing does not forecast. No partner was in default and nothing had been paid. Separately, AMD has committed up to $5.1B of equity investments, primarily in privately held companies that develop SI and other technologies, and invested $1.0B in a public company's equity offering in October. No filing names a counterparty or links an arrangement to a revenue line.
| Arrangement | Maximum ($B) | Term | Nature |
|---|---|---|---|
| Guarantees | 8.5 | Up to 15 years | Payable only on a partner's default. None in default, nothing paid |
| Data-centre lease guarantees | 7.7 | Up to 15 years | AMD may assume, assign or sublease the lease on default |
| Partner debt guarantees | 0.8 | Up to 6 months | AMD repays the borrowing on default, with recourse to the partner or the assets |
| Cloud compute capacity | 6.2 | To 2031 and after | GPU capacity bought from cloud providers to the extent third parties do not buy it, or reserved for AMD to sell or assign. $1.5B falls due by end FY2027 |
| Data-centre leases not yet commenced | 13.3 | 10 to 15 years from 2Q FY2027 | Expected to be assigned or subleased to partners |
| Sum of maximum amounts (derived) | 28.0 | Mixed | Different kinds, maximum and undiscounted. A measure of scale, not of expected cost |
| Equity investment commitments | 5.1 | Through FY2028 | Primarily privately held companies that develop SI and other technologies, subject to conditions |
| Investment in a public company's offering | 1.0 | Made in October | Company not named |
These arrangements add counterparty exposure that the reported balance sheet does not show, and Su described the approach to partners as "selectively investing with our lead partners", with "the first principle being investing in our growth". The purchase commitments cut both ways: they add supply exposure, and they are consistent with the FY2027 guide, since the $22.2B due in FY2027 is about 24% of the guide's floor revenue (derived). Neither enters the valuation bridge, where $10B of net cash moves the required flat margin by about 0.6 points.
The warrant disclosure changed with the first MI450 shipments (Exhibit 15). Qualifying revenue began in the quarter and $82M of grant-date value came off revenue (derived), with $4.5B still to come off as qualifying sales are booked. Fair value stood at $178.58 a share, 28% of the 25 September close (derived), which the 10-Q bases on the estimated probability that the customers meet the conditions for exercise. Hu stated the fourth-quarter share count excludes warrant shares and that AMD will guide on vesting in 2027.
| Item | Disclosed |
|---|---|
| Holders | OpenAI, issued October 2025 and exercisable to 5 October 2030. Meta, issued February 2026 and exercisable to 23 February 2031 |
| Commitments behind them | OpenAI 6GW of AMD GPUs. Meta up to 6GW |
| Shares | Up to 160M each, 320M combined, at $0.01 |
| Vesting | Purchase milestones and AMD share price targets, then technical and commercial conditions before exercise |
| Vested | None. Most market conditions had been met |
| Grant-date fair value | $14.25 a share. $4.5B still to reduce revenue as qualifying sales are booked |
| Deducted from 3Q26 revenue | $82M (derived) |
| Fair value | $178.58 a share, 28% of the 25 September close of $630.63 (derived) |
| Liability and charge | $1.2B liability. $1,097M non-cash charge in other expense |
| Dilution at full vesting | 320M against 1,661M diluted shares, 16.2% of the enlarged count |
The overlay Memo No. 1 opened carries the server line, capital and cash as a reporting layer with no status attached (Exhibit 16).
| Overlay metric | 2Q26 | 3Q26 |
|---|---|---|
| Server revenue growth, year on year | Above 70% | Above 100% |
| Data Center revenue, and share of total | $6,718M, 58% | $8,546M, 64% |
| Data Center operating margin | 31.3% | 33.7% |
| Capex, and share of revenue | $808M, 7.0% | $648M, 4.8% |
| Free cash flow | $1,558M | $554M |
| Free cash flow excluding the payables movement | ($716M) | ($1,759M) |
| Inventory, and inventory days | $8,468M, 145 | $11,463M, 170 |
| Non-GAAP EPS in the quarter | $1.66 | $2.09 |
| Diluted share count | 1,659M | 1,661M |
| Net cash | $9,885M | $8,697M |
What the Price Implies
This section characterises the financial conditions the current enterprise value implies. It is not a price target, a fair-value estimate, or a view on whether the shares are mispriced.
At the 10 November close of $510.95, on 1,661M diluted shares and $8.7B of net cash, the market values AMD's operations at $840.0B (Exhibit 17). The discount rate rose to 13.49% from 13.14%, on a 4.876% risk-free rate and a beta of 2.03, Blume-adjusted from 2.54 on five years of monthly returns to October. Free cash flow on the model is revenue times a GAAP EBIT margin times a conversion factor, which carries acquisition amortisation, stock-based compensation, capital expenditure and cash tax. Each instrument solves the model's path for one requirement: a flat EBIT margin from FY2027, a terminal margin by the residual method, or a uniform revenue growth rate to FY2035 on the path's margins.
On like-for-like construction the requirement barely moved from Memo No. 1. Re-run on this model, Memo No. 1's inputs give requirements within 0.8 points of today's on each instrument. Memo No. 1 published 95% for the residual on a ten-period construction from an LTM base, and the same inputs give 94.6% on that construction and 84.7% on this model's, so 9.9 points of the difference come from the change of method.
| Line | Memo No. 1, 5 Aug | This memo, 10 Nov |
|---|---|---|
| Market | ||
| Share price | $494.16 | $510.95 |
| Diluted shares (M) | 1,659 | 1,661 |
| Net cash | $9.9B | $8.7B |
| Enterprise value | $809.9B | $840.0B |
| Bases and multiples | ||
| LTM revenue ($M) | 41,305 | 45,436 |
| LTM GAAP operating income ($M) | 6,488 | 8,050 |
| LTM free cash flow ($M) | 7,736 | 6,760 |
| EV / LTM revenue | 19.6x | 18.5x |
| EV / LTM GAAP operating income | 124.8x | 104.3x |
| EV / LTM free cash flow | 104.7x | 124.3x |
| Discount rate | ||
| Risk-free rate | 4.62% | 4.876% |
| Raw beta, five-year monthly | 2.49 | 2.54 |
| Weighted cost of capital | 13.14% | 13.49% |
| Requirements | ||
| Flat EBIT margin, FY2027 to FY2035, this model | 54.4% | 53.6% |
| Uniform revenue CAGR, FY2026 to FY2035, this model | 31.4% | 31.2% |
| Residual terminal EBIT margin, this model | 84.7% | 84.2% |
| Revenue CAGR at a 29% terminal margin, Memo No. 1 series | 30.7% | 30.5% |
Exhibit 18 sets out every assumption on the path. FY2026 is built from nine months reported and the fourth-quarter guide. The FY2027 step of 56% is a model assumption, below management's floor of more than 80%, and the sensitivities carry the guided case.
| Revenue growth | Revenue ($M) | GAAP EBIT margin | FCF / EBIT | Free cash flow ($M) | |
|---|---|---|---|---|---|
| FY2026E | 50.6% | 52,166 | 20.7% | 1.15x | 12,428 |
| FY2027E | 56.0% | 81,379 | 23.0% | 1.12x | 20,963 |
| FY2028E | 32.0% | 107,420 | 22.5% | 1.08x | 26,103 |
| FY2029E | 24.0% | 133,201 | 24.5% | 1.05x | 34,266 |
| FY2030E | 18.0% | 157,177 | 26.0% | 1.02x | 41,683 |
| FY2031E | 14.0% | 179,182 | 27.0% | 1.00x | 48,379 |
| FY2032E | 11.0% | 198,892 | 27.8% | 0.98x | 54,186 |
| FY2033E | 8.0% | 214,803 | 28.4% | 0.96x | 58,564 |
| FY2034E | 6.0% | 227,692 | 28.8% | 0.95x | 62,296 |
| FY2035E | 4.0% | 236,799 | 29.0% | 0.95x | 65,238 |
The record series reads 30.5% at a 29% terminal margin, against 30.7% published in August (Exhibit 19). The larger LTM revenue base removed 1.37 points, and the higher price and discount rate added 1.25. The order of the steps changes their sizes slightly. The walk is arithmetic and carries no view on the shares. At the LTM conversion of 0.84 times, against the series' constant 1.03 times, the series would read 33.4%.
| Step | Requirement | Change (pts) |
|---|---|---|
| Memo No. 1, as solved | 30.66 | -- |
| Price, $494.16 to $510.95 | 31.15 | +0.49 |
| Diluted shares, 1,659M to 1,661M | 31.17 | +0.02 |
| Net cash, $9,885M to $8,697M | 31.19 | +0.02 |
| LTM revenue, $41,305M to $45,436M | 29.82 | (1.37) |
| LTM GAAP margin, 15.7% to 17.7% | 29.69 | (0.13) |
| Discount rate, 13.14% to 13.49% | 30.45 | +0.76 |
| This memo | 30.45 | (0.21) |
The close has ranged from $449.04 on 6 November to $633.91 on 2 October since the second quarter ended. Exhibit 20 re-solves each close on this memo's inputs, so it varies price alone and does not show what the requirement read on each date. This memo attributes none of these moves to a cause.
The trade-off between margin and growth barely moved (Exhibit 21). With the margin rising in equal steps from 20.7% to 29%, against a third-quarter GAAP operating margin of 21.2%, the price requires 31.4% annual revenue growth to FY2035, taking revenue to about $611B. The headline 31.2% uses the path's own margins, which run above that ramp in most years, and the record series' 30.5% uses Memo No. 1's construction. At NVIDIA ($NVDA)'s fiscal 2025 operating margin of 62.4% the requirement is still 20.3%. AMD compounded revenue at 24.1% from FY2015 to FY2025.
The guide, conversion and the warrants each move the requirement by more than the quarter did (Exhibit 22). Moving FY2027 to the guide's floor lowers the flat requirement to 46.4%, and on that path the growth required from FY2028 falls to 25.3%. Holding conversion at the LTM 0.84 times raises the flat requirement to 62.6%, and the two together leave it at 54.2%. Full vesting of both warrants raises it to 64.2% on the model's path and 55.6% with the guided FY2027, and the guided case and the vesting tend to arrive together because the warrants vest partly on purchase milestones. Each row is a consistency result: it identifies a combination the price is compatible with and attributes nothing.
| Case | Flat EBIT margin, FY2027 to FY2035 | Revenue CAGR to FY2035 | Residual terminal margin |
|---|---|---|---|
| Model path at the mark | 53.6 | 31.2 | 84.2 |
| FY2027 at the guide's floor of 80% | 46.4 | 25.3 | 69.0 |
| Conversion held at the LTM 0.84 times | 62.6 | 33.5 | 100.7 |
| Both of the above | 54.2 | 27.9 | 83.6 |
| Conversion held at 1.00 times | 52.6 | 30.6 | 80.1 |
| Warrant shares at the 28% fair-value ratio | 56.6 | 32.1 | 90.5 |
| Warrants fully vested | 64.2 | 34.2 | 106.7 |
| Warrants fully vested, FY2027 at the guide's floor | 55.6 | 28.7 | 88.6 |
| Discount rate 12% | 45.1 | 27.8 | 62.0 |
| Discount rate 15% | 62.2 | 34.5 | 111.5 |
On reported LTM figures AMD trades at 18.5 times revenue, 104.3 times GAAP operating income and 124.3 times free cash flow, against peer medians of 12.8, 22.0 and 38.0 times (Exhibits 23 and 24). The difference lies more in margin than in the multiple of revenue: AMD's GAAP operating margin of 17.7% is about half the 34.1% median, and the flat requirement of 53.6% sits between Broadcom ($AVGO)'s 48.0% and TSMC's 58.0%. Acquisition amortisation depresses GAAP operating income at AMD, Broadcom and Marvell Technologies ($MRVL) alike. Price-to-earnings is left out because the warrant charge and the tax benefit distort AMD's net income.
| Company | LTM revenue ($B) | Revenue growth, fiscal YTD | Operating margin | FCF margin | EV / revenue | EV / operating income | EV / FCF |
|---|---|---|---|---|---|---|---|
| AMD | 45.4 | 44.3% | 17.7% | 14.9% | 18.5x | 104.3x | 124.3x |
| AI compute | -- | -- | -- | -- | -- | -- | -- |
| NVIDIA | 303.0 | 95.8% | 65.2% | 41.9% | 14.2x | 21.8x | 34.0x |
| Broadcom | 89.1 | 55.0% | 48.0% | 44.2% | 17.9x | 37.3x | 40.5x |
| Marvell | 9.5 | 32.2% | 16.5% | 18.3% | 15.2x | 91.9x | 82.9x |
| Intel | 59.9 | 18.0% | 2.9% | 6.3% | 5.2x | NM | 82.6x |
| Median | 74.5 | 43.6% | 32.3% | 30.1% | 14.7x | 37.3x | 61.6x |
| CPU and IP | -- | -- | -- | -- | -- | -- | -- |
| Qualcomm | 43.1 | (2.6%) | 20.1% | 20.1% | 4.4x | 22.1x | 22.1x |
| Arm | 5.5 | 24.9% | 16.7% | 22.2% | 36.1x | NM | NM |
| Median | 24.3 | 11.1% | 18.4% | 21.1% | 20.3x | 22.1x | 22.1x |
| Supply chain | -- | -- | -- | -- | -- | -- | -- |
| TSMC | 150.6 | 41.1% | 58.0% | 29.9% | 11.4x | 19.6x | 38.0x |
| Micron | 133.2 | 256.3% | 74.6% | 44.3% | 5.8x | 7.8x | 13.1x |
| Median | 141.9 | 148.7% | 66.3% | 37.1% | 8.6x | 13.7x | 25.6x |
| All eight peers, median | 74.5 | 36.6% | 34.1% | 26.1% | 12.8x | 22.0x | 38.0x |
The Conditions
C4 moved to Developing from Dormant on the first warrant accounting, and no other status changed. Trends improved on C1, C4 and C5, held on C3 and C7, and fell on C2 and C6 (Exhibit 25).
| Condition | Tier | 2Q26 | 3Q26 | Status | Evidence |
|---|---|---|---|---|---|
| C1: MI450 ramp enters volume, revenue in 2H2026 | Load-bearing | In production, no revenue | Revenue begun, 4Q step guided, OpenAI gigawatt undated | 🟡 Developing ↑ | Partial: no date for the first gigawatt |
| C2: Yield and HBM support the FY2026 commitment draw-down | Load-bearing | HBM clear, conversion unread | Margin and charges clean, inventory up 35% | 🟡 Developing ↓ | Partial: no yield read |
| C3: ROCm reduces enterprise migration friction | Load-bearing | First milestones, all first-party | ROCm 10, frontier-lab evidence again | 🟡 Developing → | Partial: no enterprise read |
| C4: OpenAI warrant tranches begin vesting | Load-bearing | Not testable | Qualifying revenue begun, none vested | 🟡 Developing ↑ | Partial: no tranche yet vested |
| C5: Helios reaches hyperscale readiness in FY2026 | Amplifying | Launched, in production | Five named customers running workloads | 🟢 Affirmed ↑ | Readiness full, margin leg not yet testable |
| C6: Client unit share at or above 40% | Amplifying | Share unread, margin 15.2% | Share unread, margin 15.4%, PC market guided down | 🟡 Developing ↓ | Partial: no share data |
| C7: China resolution without further charges | Amplifying | No charge, no resolution | No charge, no restatement, MI325 licences with a tariff | 🟡 Developing → | Partial: no resolution read |
C1: MI450 production ramp enters volume and begins revenue recognition in 2H2026
🟡 Developing ↑ Revenue recognition began on schedule and the fourth-quarter step is guided rather than reported. OpenAI's first gigawatt remains undated, which caps the status.
Su stated the third quarter was "the first quarter that we shipped MI455 and Helios racks for revenue", and Hu attributed the sequential Data Center increase primarily to initial MI450 sales and server growth. Sequential Data Center growth accelerated from 7% to 16% and 27%, and the guide implies about 50%, which is consistent with the acceleration the trigger asks for, though the disclosures cannot separate MI450 from server growth. The primer also asks management to confirm that OpenAI's first gigawatt has not moved. OpenAI is named among the customers running workloads on the first Helios racks, and Su stated AMD knows "where the GPUs are going in terms of which data centers and which locations", but no date was given for the first gigawatt at OpenAI or at Meta.
C2: Advanced node yield and HBM allocation support the FY2026 commitment draw-down
🟡 Developing ↓ Gross margin and the absence of charges read clean. Inventory moved against the condition inside its test window, and yield has no direct read.
Non-GAAP gross margin of 55.9% and GAAP margin of 53.9% clear the 52.8% bar, and no inventory charge was recorded. Management listed memory among the supply it has secured, so HBM was not cited as a constraint. The question has moved from allocation to price: Su stated AMD has long-term agreements with some suppliers and customers and is "working with our customers to ensure that those costs are shared", and the 10-Q describes an industry-wide memory shortage. The inventory trigger asks advanced-node inventory to hold or fall through the second half, and the 10-Q attributes the nine-month build primarily to advanced-node Data Center products. The $8.5B FY2026 commitment the condition names can no longer be tracked as a draw-down, because new commitments left $11.2B due in the rest of FY2026 at 26 September. The trend moves down because the inventory trigger, outside its window at Memo No. 1, now reads against the condition and nothing offset it.
C3: ROCm software parity reduces enterprise migration friction through FY2027
🟡 Developing → ROCm 10 added production features, and the evidence still comes from frontier labs rather than the enterprises the condition names.
ROCm 10 adds agentic performance tuning that, on AMD's account, turns weeks of optimisation into hours, and Su cited Anthropic's account of one engineer using Claude to bring up its latest model on MI355X racks over a weekend. Both are first-party or customer accounts, and neither has been tested independently. Asked about enterprise, Su stated the segment is "developing, let's call it, a little bit slower than the largest Frontier Labs and hyperscalers", and AMD has introduced enterprise-specific GPUs. That addresses the pace of enterprise adoption, and no analyst raised migration friction.
C4: OpenAI warrant tranches begin vesting in the FY2026 or FY2027 annual filing
🟡 Developing ↑ The first warrant accounting arrived with the first MI450 shipments. No share has vested, and management guides the fourth-quarter share count to carry none.
Qualifying revenue began this quarter, bringing the first deduction of grant-date value from revenue and the first remeasurement charge, and the 10-Q reports that most market conditions had been met. That is the first movement on the condition since the primer, so the status moves to Developing from Dormant. The warrants are fair-valued at 28% of the quarter-end close, on the estimated probability of exercise. Hu stated the fourth-quarter share count excludes warrant shares and that AMD will guide on vesting in 2027, so the FY2026 annual filing is unlikely to show warrant shares in the diluted count. Meta holds a second warrant, issued in February 2026 against up to 6GW, for up to 160M shares at $0.01. Su also stated OpenAI chose EPYC as the host CPU for its first custom accelerator platforms, a server win that also shows OpenAI developing its own accelerators, which the disclosures do not place inside its AMD commitment.
C5: Helios rack-scale platform reaches hyperscale deployment readiness in FY2026
🟢 Affirmed ↑ Five named customers are running workloads on Helios, and OEM systems are expected in the fourth quarter. The FY2027 margin test sits outside its window.
Anthropic, Meta, Microsoft ($MSFT), OpenAI and Oracle ($ORCL)'s cloud infrastructure unit are running models and workloads on the first Helios racks, and management expects HPE, Dell, Lenovo and Supermicro to begin shipping systems in the fourth quarter. Data Center margin rose to 33.7% with initial MI450 sales in the mix, already above the level the FY2027 test names, so that test still cannot separate Helios economics from server mix. Helion, AMD's new Venice-based reference design for agentic racks, all-CPU or mixed with Instinct GPUs, is a separate product.
C6: Client unit share reaches and holds at or above 40% through FY2027
🟡 Developing ↓ The threshold remains unreadable, the margin trigger failed again, and management plans for the PC market to fall in FY2027.
No unit-share figure was disclosed. Client and Gaming operating margin of 15.4% sits below the 19.6% bar and the 21.4% of a year ago. Management guided segment revenue down more than 20% in the fourth quarter and plans for PC market unit shipments to fall by a double-digit percentage in FY2027, attributing the weakness to memory and component costs rather than to AMD's share or pricing, which is why the status stops short of Weakening. Su stated supply is "quite fungible" between the PC and Data Center businesses, so constrained supply can move to the larger business.
C7: China regulatory resolution without further inventory charges
🟡 Developing → No further charge and no guidance restatement. Licences now cover a second product, with a tariff attached.
China did not feature on the call or in the guidance, and no new inventory charge was recorded. The 10-Q reports licences to ship MI308 to certain China-based customers, with shipments since the end of FY2025, and licences granted in the first half to ship MI325, which must first be inspected in the United States and so bears a 25% tariff on importation. The 15% revenue-share expectation remains without a published regulation.
Thesis Standing
The chain the primer built has reached its first commercial step. MI450 ships for revenue, Helios runs at five named customers, and management guides Data Center AI revenue above server revenue in the fourth quarter. The conversion the primer tests over FY2027 has begun at the revenue line and not yet at the cash line.
On like-for-like construction the price asks about what it asked in August. The larger revenue base eased the requirement, and the higher price and discount rate restored it. The composition of the risk changed. Revenue now runs ahead of the model's path on management's guidance, and cash conversion runs behind it. On the model's arithmetic the two roughly offset, which leaves conversion as the variable the fourth quarter and FY2027 test.
The commitments and support arrangements commit AMD to more of the ramp's cost before the revenue arrives. If the guide holds, commitments convert into shipped product, inventory and receivables release cash, and the payables built this year fall due. If it slips, AMD carries unconditional purchases, partner guarantees and capacity backstops that its reported net cash does not reflect.
What to Watch
The fourth-quarter print tests the Data Center step and the cash build together, and the FY2026 10-K updates the commitments and the warrants (Exhibit 26).
| Date | Event | Tests | What it would show |
|---|---|---|---|
| 1 and 9 December 2026 | UBS and Barclays conferences | Guide | Any change to the fourth-quarter or FY2027 markers |
| By end 2026 | Taalas and World Labs close | Overlay | Shares issued against the 1,668M guide, and added amortisation |
| Early 2027 | 4Q26 results | C1, C5 | Data Center against about 50% growth on the quarter, AI revenue above server, the first quarter of OEM Helios systems |
| Early 2027 | 4Q26 results | C2, overlay | Gross margin against about 55%, inventory against $11.5B, payable days against 115, free cash flow with and without payables |
| Early 2027 | 4Q26 results | C6 | Client and Gaming against a decline of more than 20%, and client unit growth |
| Early 2027 | FY2026 Form 10-K | C2, C4, overlay | Commitments against $48.8B, guarantees against $8.5B, warrant vesting status |
| By about March 2027 | Partner debt guarantees mature | Overlay | Whether the $750M is renewed or falls away |
| First half 2027 | Anthropic's first gigawatt | C1 | Deployment on the date given at 2Q26 |
| From 2Q FY2027 | $13.3B of data-centre leases begin | Overlay | Whether the leases are assigned or subleased to partners or held by AMD |
| During 2027 | Vesting guidance | C4 | Management's guidance on when warrant conditions are met |
Sources: AMD Form 8-K with Exhibit 99.1 and earnings presentation, and the earnings call, 3 November 2026. AMD Form 10-Q for the quarter ended 26 September 2026. AMD Form 10-Q for the quarter ended 28 March 2026 and Form 10-K for FY2025, for comparatives. AMD second-quarter 2026 release, earnings tables and call, 4 August 2026. Peer figures from each company's latest filing or release as logged in the Marvin Labs model, priced at the 10 November 2026 close. Damodaran implied equity risk premium, 1 August 2026. US ten-year Treasury yield, 10 November 2026. Non-GAAP figures are management's. Free cash flow is operating cash flow from continuing operations less capital expenditure. Figures marked derived are calculated from disclosed lines.
