Advanced Micro Devices, Inc’s (ticker: AMD) first quarter (Q1) results for Fiscal Year (FY) 2026 indicates that it did overcome the momentary stilling of sales in arguably the hottest segment of the chip market – datacentres – seen across FY 2025. As a result, the stock soared 20% when markets opened on the 6th of May.

However, trends indicate that this comes at rising concentration risk, much like with Nvidia.

Trend Analysis

AMD seems to have achieved harmony in its earnings passthrough to earnings in Q1 2026, a marked difference from full FY trends:

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Source: Company Information; Leverage Shares analysis

If present trends continue, revenue, R&D expenses and cost of sales will be 20% higher than in FY 2025 while diluted earnings per share (EPS) will be 28% higher. This is generally a positive signal for investors seeking “value” investments, i.e. a rise in revenue generally indicating a near-commensurate rise in earnings.

For the datacenter segment, the company announced that it will delivering up to 6 gigawatts of its Instinct GPUs to Meta, of which the first 1-GW will be powered by custom-designed Instinct MI450-based GPUs as part of an agreement penned in February. Meta will also be a lead customer for its upcoming 6th Gen EPYC CPUs. The company also stated that new and expanded 5th Gen EPYC-powered cloud instances have been deployed by Google and Microsoft across general-purpose, memory- and compute-optimized workloads.

Interestingly, AMD also made a point of highlighting that Chinese tech giant Tencent has made substantial utilization of AMD chips in their deployed cloud instances, thereby indicating that the restrictions placed on technology sales to China haven’t affected its global reach. This is simultaneously a positive and a factor to watch for: there is substantial bipartisan backing in the US legislature to tighten controls on China and AMD’s sales could one day potentially be in its crosshairs – just like with Nvidia.

The company also indicated that it is collaborating with Samsung on next-generation memory and compute technologies, which will include a stable supply of currently bottlenecked HBM4 (High Bandwidth Memory 4) supply for present- and next-generation GPUs and CPUs.

Across the company’s other two segments, however, the company’s prospects seem to have stilled in growth. Growth in the “Client and Gaming” segment seen across the previous FY seems to have stopped with the segment currently trending to deliver revenues at par. The “Embedded” segment is also currently trending at par with the previous FY, wherein a decline was noted.

However, despite the flatness in revenue share in both segments, “Embedded” delivers a slightly better bottom line contribution over “Client and Gaming” by delivering higher operating income. Neither segment comes close to the “Datacenter” segment, however, wherein trends in operating income closely match that of the overall while revenue contribution continues to grow.

The importance of the “Datacenter” segment mustn’t be understated: it now comfortably delivers well over half the company’s revenue while the other segments are trending in decline.

Source: Company Information; Leverage Shares analysis

Share of R&D expenses and cost of sales within net revenue seems to be running stable for a number of years now. As a result, both operating income and net income are running stronger.

“Datacenter” sales help the company stabilize future revenue streams, given that corporate demand tends to be stable and run into multiple years. The retail consumer market – as exemplified by the “Client and Gaming” segment – tends to be more unpredictable and had slipped below the halfway mark in 2023, with the brief lift in 2025 now seeming to be an outlier.

The gamer segment used to be a high-margin segment, especially given how AMD’s “semi-custom” products were used in the manufacturing of PlayStation 5 and Xbox Series X/S consoles. With the current console generation entering its later years with no sign of strong uptick in sales, this segment is no longer a growth engine like it historically was.

Potential Bottlenecks

Management indicated a 55% non-GAAP gross margin in Q1 which, while a step down from the 57% seen in Q4 2025, reflects the normalization of one-time inventory gains from 2025. Any indication of this being a matter of concern can, therefore, be put aside.

What might be a matter of concern, however, would be supply constraints rather than demand. The company’s products are manufactured almost exclusively by TSMC, with its high-demand Instinct series particularly reliant on TSMC’s advanced 3nm nodes and CoWoS (Chip on Wafer on Substrate) packaging.

Thus, supply constraints slip out of the company’s hands into an external party: in the event that TSMC isn’t able to scale production in tune with AMD’s orderbook, there is substantial potential for non-fulfilled orders to pile up in the second half (H2) of 2026. CEO Lisa Su mentioned during the earnings call that the company is coordinating with partners to ensure that this doesn’t happen.

Some concerns are being voiced that enterprise clients might be deploying AMD products simply to parley with Nvidia to get better pricing. However, the Meta deal likely puts paid to this notion: while Nvidia is generally considered to lead in training models because of the well-integrated software stack packaged as part of the solution provided, AMD’s latest GPU pack more memory – thus making them ideal for inference models employed after training – and compute at a lower cost. This is a potential sign of maturity within the AI market, with AMD having found a comfortable niche to reside in and build out of.

In memory – wherein the company has a high dependence on the likes of Samsung, et al – CFO Jean Hu explicitly mentioned “inflationary pressures” emanating from rising costs for HBM and other AI-relevant components – which the conflict in the Middle East is exacerbating. For instance, helium used in the manufacturing of wafers and is predominantly sourced at a cost-effective price from the Middle East until the Strait of Hormuz was sealed. Supplies typically have a significant lag, which means that cost of manufacturing would be evaluated for a while even if supply was restored right now.

In Conclusion

In the month leading up to the earnings release, the stock had already climbed a whopping 60%, which is highly suggestive of the notion that the company’s niche within the AI supply cycle was well-factored in and priced. Given that, this early 20% increase might prime the market for profit-taking.

It is no secret that AI-relevant themes are highly overvalued, which inevitably means that these stocks are prone to substantial correction. A near 80% uptick in the span of a single month to access 28% higher earnings with no substantial rewards in the form of a dividend heavily suggests a correction will be due from a profit-taking perspective.

But this is entirely separate from evaluating the merits of the company. It continues to evolve in one high-potential segment at the cost of traditional retail-friendly segments. But as seen in Nvidia (and now even SanDisk), this isn’t altogether novel. It’s just how the semiconductor industry is right now.

Professional investors in Europe might consider the +3x Long AMD ETP (AMD3) and the -1x Short AMD ETP (FAMDS) during bullish and bearish trends in AMD’s price. To potentially capitalize on major tech stocks seemingly driving the market currently, the 5x Long Magnificent 7 ETP (MAG7) and the -3x Short Magnificent 7 ETP (MAGS) are at hand.

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