AMD’s (AMD) Q2 earnings print rolled out big numbers, while keeping the AI narrative intact.
However, even with all that strength on paper, not every corner of Wall Street is convinced. Morgan Stanley’s latest research note on the AI giant strikes a cautious tone, and what they flagged could potentially ripple across the entire chip space.
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The reasons are much deeper than earnings and into the murkier territory of global policy and risk.
U.S. policy whiplash keeps AI chip exports in flux
Who could’ve guessed that semiconductor policy would become a geopolitical tug-of-war, with chipmakers like AMD caught in the middle?
Since the first round of punitive U.S. export controls during President Donald Trump’s first term, Washington’s stance on AI chips has had everything to do with national security and economic self-interest.
It started in 2018, when Trump’s administration barred Chinese telecom giants from obtaining federal contracts, while laying the groundwork for future chip restrictions.
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However, it was under President Biden in late 2022 that things truly escalated.
The Commerce Department formally layered in high-end GPUs and semiconductor gear to its export blacklist, linked to China’s military and AI ambitions.
In mid-2025, though, the Trump administration flipped the script completely.
In May 2025, during Trump’s second term, the Commerce Department reopened the door for Nvidia’s H20 GPUs to ship to China. However, at the same time, Washington slapped a 100% tariff on non-U.S.-made chips.
The jarring U-turn has sparked a bipartisan backlash, with critics arguing that the U.S. gave up leverage without getting any real concessions from Beijing.
Meanwhile, the licensing arm of the Bureau of Industry and Security remains mostly overwhelmed.
With staffing troubles, outdated systems, and a flood of export requests, it’s currently experiencing the worst backlog in 30 years. Billions in GPU shipments are stuck in a bureaucratic limbo, and Chinese buyers are reportedly looking at gray-market workarounds.
Hence, analysts warn that the AI market will remain choppy without much clarity on the bureaucratic front.
Record sales, shrinking margins as AMD’s China problem bites
AMD delivered its best quarterly sales performance in Q2, but its bottom line told a different story.
For Q2, the chipmaker reported a whopping $7.70 billion in sales, up 32% year-over-year, and comfortably ahead of Wall Street’s $7.41 billion forecast.
CEO Lisa Su credited robust demand for Zen 5 Ryzen processors and accelerating MI350 deployments across data centers.
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However, from a profitability standpoint, AMD ran into turbulence.
Non-GAAP earnings per share landed at $0.48, down roughly 30% from a year earlier. GAAP EPS came in at $0.54, which ignores a painful $800 million inventory and related charge linked to the stalled MI308 GPU shipments to China under U.S. export rules.
Additionally, gross margin on a non-GAAP basis dropped 10 points to 43%, and operating income tanked 29% to $897 million. On a GAAP basis, AMD swung to a $134 million operating loss.
CFO Jean Hu stressed that gross margins would have been close to 54% without the export-related drag, underscoring the strength in AMD’s earnings power.
Still, not everything is bleeding red.
Data-center sales surged 14% to $3.2 billion, PC chip sales jumped 67% to $2.5 billion, and gaming soared 73% to $1.1 billion. Perhaps the only soft spot was embedded chips, which dropped 4%.
Nonetheless, all roads lead back to China.
AMD hasn’t dished out a clear timeline for resuming shipments of MI308 GPUs, shedding light on how “vague” the current U.S. export review process has become.
AMD gets a downgrade despite strong Q2 earnings
Morgan Stanley isn’t buying the hype.
On Aug. 6, analyst Joseph Moore cut his price target for AMD stock to $168 from $185, maintaining an “equal weight” rating.
That may surprise some, as the chipmaker just posted its best quarterly sales performance in Q2. AMD also showed strength across all its major segments: Client, Data Center, Gaming, and Embedded.
Moore even praised AMD’s next-gen MI400 GPU lineup, calling it a core driver for future expansion.
Nevertheless, despite the strong print, Moore highlighted near-term headwinds, particularly in China.
As discussed earlier, the U.S. export restrictions continue to cloud AMD’s ability to ship to the region. However, the concern is that Moore feels the expected recovery looks “more vague than expected.”
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Then there’s the broader AI play.
Moore argues that the AI boom hasn’t boosted AMD enough to justify a higher stock price. He warns that AMD’s near-term outlook is limited until clearer shipment ramps or margin inflection points emerge.
This downgrade, though, is in contrast to other recent analyst notes.
Hence, Moore’s call throws weight around a critical point, in that earnings aren’t the whole story, with execution and visibility mattering just as much.
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