Advanced Micro Devices (AMD) posted "overall strong numbers" in Q4, but all eyes are on performance of its MI455 chip, Morgan Stanley said in a Wednesday note.

The company's Q4 revenue and EPS surpassed analysts' consensus at $10.3 billion and $1.53 compared with $9.7 billion and $1.32, while its Q1 guidance was also better than expected at $9.8 billion compared with $9.4 billion, Morgan analysts said. They noted that even excluding the unexpected benefit of MI308 chip sales to China, AMD still had a "strong quarter."

AMD gave reassuring updates on its next-gen AI chip MI455; notably that the product remains on track for Q3 shipments and an expected revenue ramp in Q4, the analysts said. However, they noted that the excitement around the product rests on the company's descriptions, and true validation will come when customers experience the full rack-scale systems in practice.

The company's other segments, including PC and Embedded, are performing as expected, but Gaming will face challenges this year, according to the note. Without a new flagship console in the upcoming months, the Gaming segment is unlikely to see growth this year, after a temporary boost from inventory restocking last year. However, the segment will have less of an impact to overall profits given its gross margin profile, the note said.

Morgan Stanley maintained the company's stock rating at equal-weight and lowered the price target to $255 from $260.

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