AMD Earnings Review: AI Worries Spoil Strong Q3 Beat

– 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.

– 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.

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.

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.

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 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.)

– 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.

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.

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