Why AMD's Supply Crunch Could Be Good News for Its Stock
I'm LongbridgeAI, I can summarize articles.AMD's chip supply shortage signals strong unforecasted demand, prompting CEO Lisa Su to plan substantial capacity increases by 2027. The company has raised unconditional commitments to $30.3 billion to secure wafer and packaging resources. Despite the crunch, AMD's data center revenue accelerated significantly in Q2 2026, and margins remain stable around 56%. With Helios AI servers shipping and a path to double data center revenue in 2027, the author views the stock as a buy, noting that solving the supply constraint makes growth targets more achievable.
Advanced Micro Devices (AMD -2.03%) has the sort of problem most companies wish for. It can't build some of its chips as fast as customers want to buy them.
CEO Lisa Su said as much in Taipei on Oct. 6, telling reporters that demand is higher than AMD's supply and that the company plans to increase its supply substantially in 2027. The shares closed at a record $649.42 the same day, valuing the chipmaker at over $1 trillion.
Is the shortage a cap on AMD's growth? I don't think so. I'd say it's a sign that demand is running ahead of what the company planned for -- and AMD is spending a lot to catch up.
Image source: AMD.
AMD says demand topped its forecasts
An analyst on the company's second-quarter call asked Su if AMD was short of server central processing units (CPUs).
"I would say the server CPU supply chain is tight right now and it has been tight for the first half of the year because much of this demand was unforecasted," she said.
Put another way, buyers ordered more than AMD expected. Su added that 2027 demand is "better forecasted," and that AMD has "supply to more than meet the guidance that we've talked about." So the crunch caps how much AMD could beat its own targets, not its ability to reach them.
In Taiwan this week, she said AMD needs more advanced wafer capacity and is now planning three to five years out. Her visit included a meeting with Taiwan Semiconductor Manufacturing, which builds AMD's most advanced chips.
A $30 billion bet on capacity
Showing how fast the company has acted, AMD's unconditional commitments (mostly for wafers, substrates, and components, plus multiyear cloud service deals) grew from around $12.2 billion when 2025 closed to $25.7 billion in late March and $30.3 billion in late June. Over six months, the total rose about 150%. And $30.3 billion is near AMD's total 2025 revenue of $34.6 billion.
Prepayments under supply deals also caused a $1.0 billion increase in prepaid expenses and other assets over the first half of 2026. On top of that, AMD announced more than $10 billion in investments across its Taiwan supply chain in May, mainly to expand advanced packaging. Su said in Taipei that the company would invest more as demand grows.
Granted, commitments this big carry risk. If demand weakens, AMD could end up with excess inventory and higher production costs. But AMD is signing them when its server chips are already in short supply, which is arguably the best time to lock in capacity.
Accelerating growth
AMD's data center growth has accelerated for two straight quarters. The segment grew 39% year over year in the last three months of 2025, 57% in the first quarter of 2026, and 107% in the second quarter, when it pulled in $6.7 billion. Management guided for total third-quarter revenue of around $13 billion, up about 41% from a year earlier. And Helios, AMD's rack-scale artificial intelligence server system, started shipping in the third quarter as planned.
For 2027, management expects data center revenue to more than double, with server CPU revenue rising over 70%.
Prices could help a little, too. Su said AMD's server business grew both units and average selling prices by double digits in the second quarter, and she expects both to keep rising. But the shortage isn't creating much wider margins. On a non-GAAP (adjusted) basis, gross margin stayed at 55% and 56% in the first two quarters of 2026, and management guided for around 56% in the third.
NASDAQ: AMD
Key Data Points
Is AMD stock a buy near its record?
AMD's hard part now is making enough chips, not finding customers, and the company is already spending to solve that.
That said, the stock reflects lots of optimism. Shares trade around $635 as of this writing, up about 22% since the day AMD posted second-quarter results. The shares cost about 40 times the earnings per share analysts expect for 2027, so the price still assumes data center revenue doubles on schedule.
What's different now is Su's plan to substantially increase supply in 2027, plus the $30.3 billion in commitments AMD had in place by late June. That makes the doubling look more doable to me than it did a few months ago.
A slip in the Helios ramp may still hit the shares hard at this valuation. But I'd consider buying AMD stock here, likely a little at a time.