Key Points
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Server CPU demand is outpacing supply, leading to higher prices.
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AMD has been consistently gaining ground in server CPUs, suggesting that it can win big from this trend.
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AMD’s long-term earnings growth expectations have risen significantly in recent months, suggesting this high-flying stock could keep soaring.
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Investors will be eagerly awaiting Advanced Micro Devices‘ (NASDAQ: AMD) second-quarter earnings report, which will be released after the market closes on Aug. 4.
AMD stock has already jumped by 139% in 2026, as of this writing. A solid set of results and guidance will be essential for AMD to sustain its terrific momentum, especially considering its rich valuation. The good news is that AMD could indeed deliver better-than-expected numbers and robust guidance due to one simple reason.
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The growing tilt toward CPUs in AI data centers will be a tailwind for AMD
Artificial intelligence (AI) data centers have primarily relied on graphics processing units (GPUs) to handle workloads so far. That’s not surprising, as GPUs have massive parallel processing power, allowing them to process thousands of data points in one go. This has made GPUs ideal for training AI models.
However, the shift toward inference and agentic AI workloads has brought server central processing units (CPUs) back in demand. Market research firm TrendForce notes that the CPU-to-GPU ratio in AI data centers is between 1:4 and 1:8. That means only one CPU is deployed in AI data centers for every four to eight GPUs. However, agentic AI is bringing that ratio back in favor of CPUs.
TrendForce points out that the CPU-to-GPU ratio in AI data centers could shift toward 1:1 or 1:2, suggesting a 4x increase in server CPU demand to run agentic AI workloads. This shift is creating overwhelming demand for server CPUs, driving up prices. According to one estimate, server CPU prices increased by 10% to 20% between March and April. Importantly, these price rises are expected to continue, with AMD anticipated to hike prices in the second and third quarters of the year.
Moreover, AMD is also gaining volume share in server CPUs. It reportedly controlled a third of the server CPU market in the first quarter of 2026, up from 27.2% in the year-ago period, according to Mercury Research. Its revenue share, however, was much stronger at 46.2%, suggesting that AMD is commanding solid pricing power.
Assuming AMD gains more server CPU market share and sells these processors at higher prices, its growth could exceed expectations. The company has guided for a 46% year-over-year increase in Q2 revenue to $11.2 billion at the midpoint of its guidance range, though don’t be surprised to see it doing better than that.
The stock is expensive, but it can justify the valuation
AMD trades at a whopping 186 times trailing earnings and 79 times forward earnings. These multiples suggest that the stock may be overpriced right now. However, AMD’s ability to outperform analysts’ expectations, driven by rapid growth in server CPUs, can help the stock sustain its momentum. The company anticipates the server CPU market to grow at an annual rate of over 35% through 2030, generating over $120 billion in revenue.
The improving margin profile in this segment, driven by higher prices, is likely to drive stronger earnings growth. Not surprisingly, analysts have substantially increased their earnings growth expectations.
Data by YCharts
So, AMD investors can continue holding the stock heading into its earnings report, as the key catalyst discussed in this article could give it a nice shot in the arm when it releases results next month.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.
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