To The Moon

AMD Earnings Review: AI Worries Spoil Strong Q3 Beat

Global semiconductor giant $Advanced Micro Devices(AMD)$   reported its third-quarter earnings after the bell, with the stock seeing volatile after-hours trading, initially rising before falling. Following the announcement of a bold "equity-for-orders" partnership with OpenAI, AMD's stock had rallied significantly, setting high market expectations. However, management's guidance—vague in the short-term while optimistic for the long-term regarding AI revenue—failed to sway the market.

Q3 Key Financial Highlights

~Revenue: $9.25 billion, up 36% year-over-year (YoY) and 20% quarter-over-quarter (QoQ), beating the consensus estimate of $8.74 billion.

~GAAP Gross Margin: 51.7%, up 1.6 percentage points (pp) YoY and 11.9 pp QoQ, slightly below the consensus estimate of 51.8%.

~Non-GAAP Gross Margin: 54%, up 0.4 pp YoY and 10.7 pp QoQ, in line with consensus estimates.

~GAAP Net Income: $1.24 billion, up 61% YoY and 43% QoQ, slightly above the consensus estimate of $1.22 billion.

~Non-GAAP Net Income: $1.97 billion, up 31% YoY and 152% QoQ, surpassing the consensus estimate of $1.90 billion.

Q3 Revenue Breakdown by Platform

~Data Center: (Server CPUs, GPUs, FPGAs) Revenue was $4.34 billion, up 22% YoY. Operating income reached $1.07 billion, with the operating margin increasing to 25%, making it AMD's most profitable business this quarter.

~Client: (Notebook and desktop CPUs) Revenue was $2.75 billion, up 46% YoY.

~Gaming: (Game consoles, desktop GPUs) Revenue was $1.30 billion, soaring 181% YoY. The Client and Gaming segments combined posted an operating income of $867 million, a 201% increase YoY.

~Embedded: (Xilinx FPGAs, Tesla infotainment chips) Revenue was $860 million, down 8% YoY. Operating income fell 24% YoY to $280 million, though its 33% operating margin remains the highest in the company.

Three Things to Watch

Strong Data Center CPU Demand Drives Segment Revenue Past Intel

In Q2, AMD's data center revenue growth slowed to 14% YoY, impacted by provisions for China-specific MI308 chips and a significant decline in data center GPU sales, leaving the server CPU EPYC business to carry the segment. This quarter, however, AMD's server CPU sales hit new records in both cloud and enterprise sectors, propelling AMD's data center revenue ahead of Intel's. Demand for the previous generation Zen 4 EPYC "Genoa" remains strong, while the latest Zen 5 EPYC "Turin" CPUs are ramping steadily, already accounting for nearly half of EPYC revenue.

Concurrently, competitor $Intel (INTC.US)$ surprisingly delivered a decent Q3 data center report. Intel's management noted they prioritized allocating tight capacity to server CPUs over their more profitable PC CPUs, underscoring the robust demand in the data center CPU market. AMD management also forecasts substantial data center CPU investments from hyperscale cloud customers in 2026, the same year AMD plans to launch its next-gen Zen 6 2nm "Venice" EPYC.

Market Fretful Over AI Revenue Gap as Management Guides Only for 2027

AMD's Q2 data center GPU revenue declined due to the MI308 export ban and the transition from the MI325 to the MI350 series. Growth resumed in Q3, thanks to a rapid ramp-up in MI350 series capacity. This highlights the significant impact of product transitions on AMD's data center GPU revenue—a primary market concern.

AMD's current AI chip roadmap includes shipping the MI350 series in the second half of this year, the MI400 series in 2026, and the MI450 series in the second half of 2026. The 6GW order from OpenAI begins with the MI450 series, meaning it will not contribute to revenue until 2H 2026. Whether AMD's data center GPU business can smoothly bridge the revenue gap between now and then is a critical question. The market is urgently seeking AI revenue guidance for 2026.

Previously, AMD had refrained from giving full-year AI revenue guidance, stating only a long-term goal of "tens of billions" in annual AI revenue without a specific timeline. Despite securing significant recent orders, management this quarter only projected "tens of billions" in annual data center revenue by 2027, offering no specific guidance for 2025 or 2026.

PC Business Narrows Gap with Intel, Driven by Commercial Market Expansion

AMD's Client business has posted nine consecutive quarters of high double-digit growth. Desktop CPU revenue hit a record high, and commercial client sales grew over 30% YoY as enterprise adoption surged. The company expects its PC growth to outpace the industry average in the coming quarters.

Intel noted in its Q3 call that it still struggles to compete with AMD in the high-end desktop market but remains strong in consumer and enterprise notebook segments. Historically, the notebook CPU market accounts for 60%-70% of the total PC market, which explains why AMD's revenue scale still lags Intel's despite its dominant desktop market share. However, AMD is making continuous inroads in the commercial market.

Q4 Guidance

~Q4 Revenue (Est.): $9.6 billion, up 25% YoY.

~Q4 Non-GAAP Gross Margin (Est.): 54%, a slight decrease YoY.

~Q4 Non-GAAP Net Income (Est.): $2.15 billion, up 21% YoY.

(Note: Guidance excludes revenue from China-specific MI308 chips.)

Q4 Segment Guidance:

~Data Center: Double-digit growth both YoY and QoQ, with server CPU growth expected to be even higher.

~Client & Gaming: Double-digit growth YoY, but down QoQ. Client is expected to grow sequentially, while Gaming is expected to decline by a "high double-digit" percentage sequentially.

~Embedded: Expected to return to YoY growth and grow by double-digits QoQ.

Summary

Overall, following the landmark 6GW order from OpenAI, the market was desperate to see these orders translate into concrete revenue forecasts. AMD management's failure to provide specific AI revenue guidance for 2026 has dampened market sentiment. All eyes are now on AMD's Analyst Day on the 11th for any clearer signals from management.

@TigerStars  @CaptainTiger  @TigerWire  @Daily_Discussion  @Tiger_chat  @Tiger_comments  @MillionaireTiger