Advanced Micro Devices (AMD) is looking "significantly" better in 2027 after Q2 results, but its warrants issuance limits upside potential, Morgan Stanley said in a report Wednesday.

The report said its Q2 results and outlook were modestly above consensus, but below some of the more bullish expectations coming out of its last week's event.

The near-term numbers were not surprising but commentary on 2027 data center revenue of "significantly more than doubling" is positive against Morgan Stanley's 80% estimates, the note said.

"We like the revenue growth but the warrant issuance tempers our enthusiasm," the report said.

The report said the cost of warrants issued to two customers related to the launch of Helios, an open rack-scale AI platform, can't be completely ignored.

The note said the Helios success comes at a marketing expense of issuing over $15 billion in warrants for every $15 billion to $20 billion in revenues for the foreseeable future.

"If that were treated as a cash expense, it would wipe out profitability," the note said.

"To be clear, we aren't objecting to the warrant issuance, but we are saying that it has a negative impact on the earnings of the company over the next 3-4 years, which makes the stock less attractive than peers that aren't doing that," it added.

Morgan Stanley raised its price target to $465 from $410 while keeping its equal weight rating.

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