AMD's Gross Margin to Contract Sequentially: Is Growth Getting Harder?

AMD warned Q1 FY2026 gross margin will contract about 200 basis points to ~55% as a one-time MI308 inventory reserve release that inflated Q4 margins won’t repeat and China-related revenue tailwinds fade. The company guides Q1 revenue at ~$9.8 billion (+/− $300 million), about 32% YoY, despite a projected ~5% sequential decline driven by seasonal weakness in client and gaming. AMD expects higher operating expenses (~$3.05 billion) but still projects strong top-line growth to support margins. The note highlights intensifying competition in AI data centers from NVIDIA and Broadcom. Market implications: margin compression near-term but robust revenue growth keeps the growth narrative intact; valuation appears premium.