Bank of America Merrill Lynch Supports AMD: Strong Demand for Servers, Helios AI Rack brings additional growth points.

Bank of America Corp stated in its weekly outlook report on the semiconductor market that due to the "exceptionally strong demand" for server processors, AMD (AMD.US) will achieve better-than-expected quarterly performance and raise its guidance. The bank reiterated its "buy" rating on AMD and raised its target price from $550 to $620. Bank of America Corp analyst Vivek Arya stated in the research report, "Benefitting from continued market share growth of EPYC processors, strong cloud demand, and stable supply prospects, we expect AMD to achieve better-than-expected performance and raise its guidance. The company's third-quarter performance guidance may include shipments of the first batch of MI455X 'Helios' rack servers, with shipments expected to significantly increase in the fourth quarter (forecasting quarterly revenue of $6-7 billion at the end of the fourth quarter). Given AMD's comprehensive range of AI CPU products, its sixth-generation EPYC Venice processor is also expected to be released in the third quarter alongside Helios, and management may further emphasize the positive impact of AI on the CPU business. The management gave a server CPU market size of $120 billion in May, and they may revise this number upward again." AMD is set to announce its second-quarter earnings after the market closes on August 4, seen as one of the highlights of the August "compute chain" earnings disclosures. Prior to this, AMD will hold the Advancing Al conference in San Francisco on July 22-23, showcasing the latest AI infrastructure, architecture, and development technologies. The focus of this conference is on AMD's historical introduction of the rack-level AI system - the Helios platform based on the Instinct MI455X GPU. As for other chip companies, Arya stated that for Intel Corporation (INTC.US), stronger pricing, especially in the server market, may offset concerns about weakness in the personal computer market. Arya added, "Investor focus may still be on product profit margin prospects (first-quarter operating margin about 600 basis points higher than the 2025 average) and the progress of the foundry business (multiple 18A-P and 14A customer collaboration projects are ongoing), while the upcoming 18A server production Diamond and Coral Rapids projects are crucial for Intel Corporation's server market share prospects (we expect a market share of 24% by 2030, compared to 41% by 2025)." Arya stated that Arm (ARM.US) may face some short-term negative impacts due to weakness in the smartphone market, but its entry into the server market will provide performance support in the second half of this year. He said, "Short-term licensing income is mainly determined by smartphone shipments, and smartphone sales may decline year-on-year by more than 10-15% in 2026, with no substantial recovery in 2027. The upgrade dividend on the mobile end (from v8 architecture iteration to v9, CSS architecture) has essentially been realized; significant server CPU orders from companies like Alphabet Inc. Class CAxion, Microsoft Corporation Cobalt, may contribute to performance only in the second half of 2026 to 2027. The medium- to long-term general artificial intelligence (AGI) CPU supply-demand gap may be a key variable: the company's management expects market demand to reach $20 billion in the 2027-2028 fiscal year, but the supply is only $10 billion, indicating a sustained increase in AI CPU demand." It is worth noting that despite the recent sharp sell-offs in the US semiconductor sector, Bank of America Corp remains optimistic about the sector. The bank stated in its report last week that after an 88% surge in the Philadelphia Semiconductor Index in the second quarter, there was an 11% pullback in the third quarter, coinciding with the sector's historical pattern of seasonal weakness, which is seen as a "healthy reset," rather than a trend reversal.