AMD Delivers Strong But Not Explosive Results

AMD delivered a Q2 revenue beat, in-line EPS, and well above consensus guidance. Compared to BTH estimate, Q2 was a little soft in the data center and embedded segments and above expectations on the Client front.

Excluding the $800M inventory write-down related to MI308, gross margin was 54%. Investors and analysts may quibble about Q2 EPS being inline on higher revenues, but the Company is ramping opex steeply for future growth and the results were not surprising.

AMD generated $1.5B in cash from operating activities and used $478M of the cash for share repurchase. Exiting the quarter, AMD has $9.5B remaining under the share repurchase program. Why the Company did not deploy more cash for share purchases is a mystery. With the stock price up over 50% in the past few weeks, the Company would have to pay a lot more for those shares now.

For Q3, AMD expects revenue to be approximately $8.7B, plus or minus $300M. Non-GAAP gross margin is expected to be approximately 54%. This guidance assumes “0” MI308 sales in Q3 (more on this later). BTH Q3 revenue expectations were inline except for MI308 revenues (estimated at $700M but guided at $0M due to timing issues).

Now, for the highlights of the ER by key segments.

Client:

- Gaming segment was the start with 70%sequential revenue increase to $1.1B. Semi-custom revenue increased by “a large double-digit percentage” year-over-year as console inventories normalized and customers began preparing for the holiday season. PC gaming demand for the latest-generation RADEON 9000 series GPUs was very strong, and demand outpaced supply.

- As part of an end-to-end AI strategy, AMD introduced the RADEON AI Pro R9700 GPU for local inferencing, model fine-tuning, and other data intensive workloads. This is in a segment where Nvidia currently dominates, and AMD should see strong revenue growth in future quarters.

- Client revenue increased 9% sequentially to $2.5B compared to 4% increase for Intel (INTC). AMD claimed (and BTH estimated) strong market share gains, but the headline numbers are not supportive. The relative revenue growth of the companies indicates only about a 1% market share gain in the quarter for AMD. It is unclear why the market share gains appear so low and contrary to AMD’s claim. Is it that most of the Windows 10 refresh occurring in low end PCs? Or, is there some other dynamic at play? Market share data from third party vendors will shed more light into the situation.

- AMD highlighted increased share in the premium desktop gaming PC segment driven by Ryzen 9000 and premium notebook segment driven by Ryzen AI 300 CPUs.

- In commercial PCs, AMD claimed strong sell-through for AMD commercial notebooks with Lenovo and HP and a significant uptick at Dell as that company ramps AMD commercial portfolio. The Company is underrepresented in the enterprise space and has increased go-to-market resources to focus on the segment and is starting to see traction.

- Management does not believe there was much of a pull forward of demand in Q2 and pointed that higher ASPs have been driving most of the revenue growth in the Client segment. Nevertheless, management guided for a slightly below seasonal gain in H2.

- Management guided for flattish Q3 for Gaming and single-digit growth for Client. In Q4, console business was guided to be down by strong double-digits.

Embedded:

- Embedded segment revenue at $824 million was essentially flat sequentially. (Embedded end up performing like Lattice and not Altera)

- Management expects embedded to return to sequential growth in H2 2025.

Data Center CPU:

- Strong EPYC growth in Q2 was driven by Zen 5 Turin with multiple cloud instances from Google and Oracle Cloud. EPYC enterprise deployments grew significantly, supported by new wins with large technology, automotive, manufacturing, financial services and public sector customers.

- Agentic AI creates additional demand for general purpose compute infrastructure as customers realize that tokens generated by GPUs trigger multiple CPU-intensive tasks.

- Management bullish on server CPU business driven by durable tailwinds including growing demand for cloud and on-prem compute, sustained share gains, and the growing investments in general purpose infrastructure required to enable AI. Management is now seeing robust EPYC forecasts going out several quarters as customers realize that AI deployments require traditional CPUs.

Data Center GPU:

- Data Center segment revenue increased slightly in Q2 and underwhelmed at $3.2B – likely due to AMD not shipping meaningful amount of MI350s in Q2.