AMD’s Valuation Showdown: New Partnerships and Protocol Push Aim to Justify a P/ E of 137

The gap between promise and price has rarely stretched wider at Advanced Micro Devices. As the chipmaker gears up for its virtual shareholder meeting on Wednesday, shares have taken a breather — sliding 2.89% to €378.40 on Tuesday — after a blistering run that has left the stock trading at roughly 137 times trailing earnings. That multiple dwarfs rival Nvidia’s 40 and has turned Wall Street into a battlefield of bulls and bears.

The upcoming meeting is no mere procedural event. Management is expected to shed light on supply-chain capacity and the rollout of the next-generation MI450 accelerator, details that could either vindicate or deflate the current premium. But the real story may lie in two strategic moves that have flown somewhat under the radar: a cloud partnership aimed at regulated industries and a fresh networking protocol that positions AMD deeper inside the AI infrastructure stack.

A Cloud Deal for the Compliance Crowd

AMD has signed a non-binding letter of intent with Rackspace Technology to build an Enterprise AI Cloud tailored for sectors where data sovereignty and governance are non-negotiable — finance, healthcare, and government. The plan marries AMD’s Instinct GPUs and EPYC CPUs with a managed private or hybrid cloud environment, giving customers control over model training and inference without handing keys to a public cloud giant.

The caveat is size: this is a framework agreement, not a signed contract. Negotiations remain at an early stage, and final agreements are yet to materialize. Still, the direction signals that AMD is chasing more than just hyperscaler wins; it wants the sticky, high-margin business of enterprise AI.

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Rewiring the Network for Large-Scale AI

Separately, AMD has joined forces with OpenAI, Microsoft, and other technology partners to introduce the Multipath Reliable Connection (MRC) networking protocol into the Open Compute Project. MRC scatters data across multiple paths instead of relying on a single route, cutting latency spikes and rerouting traffic around failures during massive training jobs.

The move chips away at one of Nvidia’s enduring advantages: the seamless integration of its InfiniBand networking with its GPU clusters. If MRC gains adoption, AMD could narrow the gap in large-scale AI deployments without needing its own proprietary fabric.

Record Revenue, Stubborn Margin Gap

These initiatives ride on a first-quarter performance that blew past expectations. Revenue surged 38% to $10.3 billion, powered by a data-center segment that chipped in $5.8 billion alone. Adjusted earnings of $1.37 per share also topped consensus. For the current quarter, AMD guides for roughly $11.2 billion in sales, representing 46% year-over-year growth.

Yet the profit picture lags. AMD’s gross margin printed at 55% in the first quarter, well behind Nvidia’s 75%. Analysts point to Nvidia’s CUDA software ecosystem as the moat that keeps its margins fat while AMD’s open-source ROCm platform still struggles for developer mindshare. Lisa Su has promised data-center revenue growth of at least 80% annually, driven by the MI450 and MI455 chips expected to ramp through 2027, but turning that top-line surge into bottom-line leverage is a work in progress.

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Analyst Targets Tell the Story

The range of price targets has become a tale of two camps. Bernstein lifted its target to $525, Barclays to $500, and BofA to $450 — all betting that the growth trajectory justifies the multiple. At the other extreme, targets as low as $248 suggest that any misstep could trigger a sharp re-rating. Wedbush, while acknowledging management’s confidence in a stronger second-half ramp, remains cautious on GPU momentum and notes that robust CPU demand could cushion any delays.

The real test begins Wednesday. The Rackspace deal needs to move from intent to ink, and the MI450 launch must show it can deliver on the hypergrowth embedded in that P/E of 137. For now, AMD has the narrative — and the numbers — to keep the debate alive.

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