AMD Stock Testing $260 Ahead of Earnings: Can the Rally Continue?

Advanced Micro Devices, Inc. (AMD) is making headlines as it flirts with the $260 mark, trading at around $253 per share in pre-market hours. This represents a 57% gain in the last month, fueled by continued optimism surrounding its artificial intelligence (AI) initiatives and data center growth. However, with earnings slated for release today, markets are keenly watching whether AMD can justify its lofty valuation and navigate the increasingly competitive landscape.

For Q3 2025, AMD projected revenue of approximately $8.75 billion, representing a 28% year-over-year growth, driven by the ramp-up of MI350 series accelerators and ongoing EPYC and Ryzen market share gains.

The average price target currently sits at $216.30, which is approximately 16.75% below the current trading price. This suggests that, on average, analysts believe the stock is currently overvalued. Wedbush recently increased its Q3 2025 earnings per share (EPS) estimate to $0.97, maintaining an “Outperform” rating with a $270 target price.

Conversely, Seaport Res Ptn lowered its Q3 2025 EPS estimate to $0.87, assigning a “Hold” rating. UBS remains optimistic, expecting strong performance in the server and client CPU segments, with data center GPU revenue projected at approximately $1.7 billion.

Over the past year, AMD has been a star performer, boasting a remarkable 83% increase in its stock price. This surge is largely attributed to the AI boom and AMD's strategic positioning to capitalize on the growing demand for high-performance computing solutions. The stock's beta of 1.91 suggests it is significantly more volatile than the broader market, meaning markets can expect larger price swings compared to the S&P 500.

The strategic partnership with OpenAI, announced on October 6th, has been a major catalyst for AMD's recent stock surge. OpenAI's commitment to purchase 6 gigawatts of AMD's forthcoming MI450 processors, slated for deployment in late 2026, is a significant vote of confidence in AMD's AI capabilities.

While the financial details remain undisclosed, AMD CEO Dr. Lisa Su has indicated the deal could generate tens of billions in revenue over five years. The warrant granted to OpenAI for up to 160 million AMD shares at a nominal price, contingent on performance, further aligns the interests of both companies. This partnership is widely seen as a direct challenge to Nvidia's dominance in the AI hardware market and has fueled enthusiasm among AMD backers.

AMD's Q2 2025 earnings were strong, with revenue increasing 32% year-over-year to a record $7.7 billion. The Data Center segment saw a 14% increase to $3.2 billion, while the Client and Gaming segments surged by 69% to $3.6 billion. The company also reported record free cash flow exceeding $1 billion.

While the market is largely focused on AI, let's play devil's advocate. What if the narrative is overblown? What if the true value driver for AMD lies not solely in AI, but in its ability to execute across its diverse product portfolio? The gaming segment, despite recent declines, remains a significant revenue stream. Furthermore, AMD's embedded solutions are quietly powering a vast array of devices.

Perhaps the market is underestimating the resilience and diversification of AMD's business model, focusing too heavily on the AI hype. While AI is undoubtedly important, AMD's ability to consistently deliver solid performance across all its segments may be the key to long-term success, and is something the market may have glanced over. A “steady wins the race” approach, rather than a “boom or bust” AI bet, could be AMD's true advantage.

Analysts will be laser-focused on AMD's earnings, scrutinizing the company's guidance for Q4 2025 and beyond. Key areas of interest will include:

• Details on the progress of the OpenAI partnership and the expected revenue contribution from the MI450 processors.
• Insights into the demand for AMD's MI350 series accelerators.
• Updates on market share gains in the CPU market.
• An assessment of the competitive landscape in the AI hardware market.

AMD's ability to deliver strong earnings and provide an optimistic outlook will be crucial to sustaining its current stock price and justifying its high valuation. The coming days will be pivotal in determining whether AMD can continue its impressive run or if a correction is on the horizon.