AMD Beats in Q1 Yet Q2 Data Center to Decline due to Export Controls

Posted on May 7, 2025June 30, 2026 by io-fund

AMD reported a double beat in Q1 with revenue of 36% and data center growth of 57%, with the beat filtering down to the bottom line with EPS growth of 55% — ahead of revenue.

However, the excitement from the beat soon faded after hours as the earnings call Q&A was decisively about the impacts of China export controls. AMD is the first to report among the larger AI accelerator design companies this quarter, and the information shared offers a glimpse at the harsh reality that AI semiconductors face as these companies adjust to global tensions.

For AMD, the impact of the MI308 being banned from China will be $700 million in Q2 and $1.5 billion in fiscal year 2025. This impact seems significant given AMD is $5B-ish in AI revenue, yet AMD assured analysts on the call their data center revenue would see “strong double-digit growth” this year despite declining sequentially in Q2.

On the Client side, analysts were also concerned that perhaps AMD saw a pull-in ahead of tariffs as PCs (Client) reported 68% YoY growth, to which management assured analysts many times on the call that it was due to higher average sales prices. However, keep in mind, the chances AMD remains completely unscathed from a weaker consumer due to the cumulative effects of tariffs is unlikely.

AMD’s Revenue Increases 36% YoY

AMD reported Q1 revenue of $7.44 billion, solidly ahead of the $7.12 billion estimate and above the upper range of its guidance for $7.1 billion, +/- $300 million. Revenue growth accelerated to 35.9% YoY, led by data center and client, though this is expected to be the peak growth quarter for the year.

For Q2, AMD guided revenue to be approximately flat QoQ at $7.4 billion, +/- $300 million. This represents YoY growth of 26.7% at midpoint, a more than 9 point sequential deceleration. Revenue growth is currently expected to decelerate further in 2H, with analysts estimating that AMD will exit 2025 with growth of just 12.3% YoY.

What’s important to note is that estimates for the back half of the year have been revised quite a bit lower over the past three months as tariffs and export controls have set in. In February, Q3 and Q4 revenue growth was estimated to be 6-7 points higher at 23.2% YoY and 19.2% YoY.

Export Controls Result in $700M Revenue Loss for Q2, $1.5B for FY2025

It was welcomed that management quantified the export control impact to understand better how the company can weather the loss of revenue.

Here is what the CFO stated in her opening remarks:

“As a reminder, in April, a new export license requirement was put in place for MI308 shipments to China, the impact of which is included in our guidance. We expect revenue to be approximately $7.4 billion plus or minus $300 million. This includes an estimated $700 million revenue reduction as a result of the new export license requirement. Despite this headwind, the midpoint of our guidance represents 27% year-over-year revenue growth.

For the full year 2025, we estimate the revenue impact due to the export license requirement to be approximately $1.5 billion.”

On one hand, it is quite impressive AMD can overcome this impact and meet consensus for next quarter. On the other hand, analysts have been lowering estimates as AMD was supposed to see revenue of $7.77 billion for growth of 33% as of last October rather than the 26.7% in the current quarter.

There were a few questions from analysts about the export license requirements, which are detailed below under the Q&A section.

Key Segments

Data Center to Decline Next Quarter

Data Center revenue grew 57% YoY but declined (5%) QoQ to $3.67 billion, driven by sales of EPYC CPUs and Instinct GPUs, and accounting for over 49% of AMD’s revenue in the quarter. While growth decelerated from 69% in Q4, it’s coming against a much tougher comp at 80% YoY whereas Q4 of last year offered a lower comp of 38% in Q4 2023.

AMD stated they gained market share again this quarter helped by EPYC 5th Gen Turin processors, which recently launched in October. EPYC-powered cloud instances doubled YoY among Forbes 2000 enterprises with on-prem growing by a “large double-digit percentage.” According to the opening remarks, there is “a clear path to continued share gains as customers ramp their 5th Gen EPYC offerings.”

Regarding GPUs, management stated their AI revenue increased by a “significant double-digit percentage year-over-year.” The MI325X is shipping in volume while the next-gen Instinct MI350-series chips are on track for “accelerated production by mid-2025.” We discussed last quarter that AMD was pushing up their delivery on the MI350s to mid-year for relative competitiveness. That’s a nice way of saying while Blackwell is delayed, AMD will attempt to nibble at their market share with a more aggressive timeline on their next generation. In the slide presentation, AMD stated they are partnering with Oracle to deploy a large cluster of MI355X GPUs and 5th Gen EPYC CPUs.

Data Center operating income was $932 million for a 25% margin, up from a 23% margin in the year ago quarter. However, it was 5 points lower sequentially and the lowest operating margin for the segment since last Q1.

For Q2, data center will decline due to the MI308 revenue being excluded. When asked about future quarters, the CEO Lisa Su stated the DC segment would resume growth after Q2: “in Q2, it's not going to grow year-over-year just given what we've said about the $700 million coming out of Q2 and how we had previously talked about the evolution. But we do believe that we'll grow year-over-year going forward, in Q3 and Q4 certainly, for us to do the full year with strong double-digit growth.”

Client & Gaming

Client and Gaming revenue rose 28% YoY, driven by 68% YoY growth in client revenue to $2.29 billion as gaming revenue declined (30%) YoY to $647 million. Sequentially, Client revenue was down less than (1%) from Q4 while Gaming revenue rebounded 15% QoQ. AMD said the segment’s growth was driven by strong demand for Zen 5 Ryzen processors.

Client revenue stood out in Q1, outpacing Data Center growth by more than 10 points YoY against its toughest comp in recent quarters at 85% YoY in Q1 2024.

Analysts poked around quite a bit on whether the high growth rate from the Client segment was a pull-in to get ahead of tariffs. Management pushed back on it being from tariffs and stated it was due to average sales prices: “And in particular, on your question of Client performance, we've certainly looked very carefully at the ordering patterns and what customers are telling us. We have not seen a lot of tariff-related activity in that business. I would say, though, what we have seen is a real stronger mix and strength in our overall ASPs. So the desktop channel, which is an area where we have a very strong gaming products right now, actually performed well above seasonality in Q1, and that is really the strength of the ASPs there. So that's what we saw in Q1.”

Combined operating income for the two was $496 million for a 17% margin, up from a 10% margin in the year ago quarter. However, operating income was flat QoQ.

Embedded

Embedded revenue declined (3%) YoY and (11%) QoQ to $823 million. While in line with guidance for a modest decline, AMD noted that the YoY decline was due to mixed end market demand.

Embedded operating income was $328 million for a 40% margin.

Margins Steady, but Q2 to See Sharp Decline Due to China Export Controls

While adjusted margins remained steady sequentially, AMD is taking a rather large hit in Q2 to their margins due to the MI308s. In mid-April, AMD flagged an $800 million hit from charges related to inventory, purchase commitments and related reserves, and as a result, guided adjusted gross margin to contract rather sharply. This will weigh heavily on adjusted operating margin in Q2.

Q1 GAAP gross margin was 50%, up 3 points YoY, while adjusted gross margin was 54%, up 2 points YoY.
GAAP operating margin was 11%, a strong expansion of 10 points YoY, and adjusted operating margin was 24%, up 3 points YoY.
GAAP net margin as 9%, up 7 points YoY, and adjusted net margin was 21%, up 2 points YoY.

For Q2, including the $800 million impact, AMD guided for a 43% adjusted gross margin (or 54% excluding it). With management forecasting operating expenses of ~$2.3 billion in Q2, adjusted operating income including the charge would be projected at $882 million for a 12% margin.

Excluding the impact (at that 54% adjusted gross margin), AMD’s expense guide would see adjusted operating margin at 23%, down 1 point QoQ.

EPS Posts Slight Beat in Q1

AMD reported adjusted EPS of $0.96 in Q1, slightly ahead of estimates for $0.93. This represented YoY growth of 54.8%, accelerating from nearly 42% growth last quarter.

Similar to revenue, Q1 is currently expected to be peak growth for EPS, with Q2 estimated to record 27.8% growth before slowing to the low 20% level by Q4. However, management commented that EPS growth is expected to grow much faster than revenue in Q2: “Looking at Q2, at the middle point of our guidance, revenue will be increasing 27%, and we do expect the earnings per share growing much faster than the top line revenue growth.”

Cash and Balance Sheet

AMD closed its acquisition of ZT Systems in Q1, which added more than $2 billion to both its cash and debt. Cash flow margins also expanded YoY with margins remaining in the double digits.

Operating cash flow was $939 million for a 13% margin, expanding from a 10% margin in the year ago quarter.
Free cash flow was $727 million for a 10% margin, expanding from a 7% margin a year ago.
Cash and short-term investments increased nearly $2.2 billion to $7.31 billion, while debt rose more than $2.4 billion to $4.16 billion.
Adjusted EBITDA was $1.95 billion for a 26% margin.
Inventories were $6.42 billion, up from $5.74 billion last quarter.

When asked about inventory, AMD stated it was due to preparing for the H2 ramp: “Well, on the inventory side, we built some inventory primarily to support very strong client and server ramp and also the second half Data Center GPU ramp. As you probably know, the lead time is really long to build. For the Q3, Q4 ramp, we really need to start the wafers right now. That's why the inventory has increased.”

Earnings Call Q&A:

MI350s and MI400s:

AMD is poised to become a stronger contender in the next two generations of Instinct GPUs. The MI350s will launch this quarter and the MI400s will launch in 2026. The MI350s feature the CDNA 4 architecture and will increase memory capacity and bandwidth by 1.5X with 288GB of HBM3e, and support for 35X higher throughput for better inference performance than the previous generation MI300Xs. Built on TSMC’s 3nm node, the MI350s also offer better efficiency and a 7X increase in AI compute capabilities.

The MI400s will offer a rack-scale architecture, assisted by AMD's acquisition of ZT Systems, a company that specializes in complex server designs. The MI400 will feature CDNA Next architecture with multiple chiplets and separate active interposers, with rumors the MI400s will be designed to increase data flow efficiency.

With the MI400s, AMD will be tasked with launching rack scale systems more smoothly than what we’ve seen from Nvidia these past two quarters. Here is what was said on the call in terms of the MI400 potentially closing the gap competitively with Nvidia – notably, AMD and all AI accelerators will remain in second place into the foreseeable future, yet the MI400 could be the moment when AMD becomes a firm second place winner.

“I think, look, we're excited about the MI350 Series launch that's coming up, but we are extremely excited as well about the MI400 Series and the road map there. I think we've been very active with customers on our road map. As you know, this is one of those areas where you absolutely have to be planning many quarters in advance for that. One of the primary reasons we acquired ZT Systems was exactly to address this rack-scale architecture.”

Export Controls and AI Diffusion Rules:

There was a question about the overall TAM of the AI market given China will no longer be a customer, and about the AI diffusion rules that have a deadline of May 15th to establish new rules. Lisa Su does not think China affects the $500B TAM she originally stated a few quarters ago, stating: “I think we always expected that there would be some amount of, let's call it, limitation on sort of leading-edge GPUs going into China. So that was factored in to our TAM expectation when we talked about $500 billion. So I don't think that dramatically changes the TAM.”

However, when it comes to AI diffusion rules, she was not as definitive as to the impact: “At the end of the day, when we look at sort of the U.S. AI companies, we have leading-edge technology. We want to ensure that the rest of the world can really use us as the primary platform. So I think it will be important to work through the AI diffusion rules and all of that as we think about longer-term TAM.”

Management Adamant Client Revenue is from Higher ASPs:

There were a few opportunities where management declined to connect higher Client growth to tariffs, and rather was adamant it’s from the strength of their product portfolio. AMD is being quite bold to state they are not seeing an impact from tariffs and do not expect to see a meaningful impact. Here is one of the exchanges in the Q&A:

CJ Muse:

I wanted to revisit your assumptions around Client. If you were to just flatline the Q1 actual, you would grow the business about 30%. You're obviously very bullish on taking share. You talked about huge tailwinds from ASPs. But curious, when you put it all together, how should we think about traditional seasonality into the second half, particularly with the potential of some pull-ins here in the first half?

Lisa Su:

Sure, C.J. It's a fair question. Look, we want to be very clear that our Client business performance is primarily driven by the strength of the product portfolio. And it's driven by some of the desktop channel products that traditionally are not so well tracked if you look at sort of the IDCs of the world. We are planning for, let's call it, second half sub-seasonal given that we're off to such a strong start in the first half of the year. And that is what we're putting into our sort of internal planning number. So you wouldn't see necessarily typical seasonality since the first half is better than seasonal.

That being the case, I think we feel strongly that, from a consumption basis standpoint, we see the data. So when we look at the Q1 performance, it was a very, very strong Q1 in terms of sell-out and consumption for our desktop business. And as we start Q2, we're now 4 weeks into it, we see those patterns continuing. So we're in an upgrade cycle right now. Gaming CPUs are usually repurchased when there are gaming GPUs that come out in new cycles. And I think we're benefiting from that on both the CPU and the GPU side, which is great. I mean, we're very happy with that, and we're ramping up production to ensure that we keep the channel full.

Conclusion:

AMD put up a solid report for Q1 on all accounts, yet the industry-wide headwinds that will take effect in Q2 introduce uncertainty for the semiconductor sector as a whole. Of the companies that will be affected, AMD is communicating they are ready to weather the storm. In data center CPUs, they have one of the most underrated products of all time – EPYC CPUs which continue to take substantial market share. In AI, they have a solid line up with the MI350s expected to launch this quarter to help offset the weight of losing China – in fact, by Q4, AMD is forecasting the loss of China revenue will be fully absorbed and there will be no impact by the time year closes out. In Client, they have some of the strongest AI PCs on the market and are confident average sales prices will remain above industry average for 2025.

However, AMD is a semiconductor stock in the center of a massive shift to supply chains and is in the crosshairs of a geopolitical war that will be defined by policies surrounding AI. It’s not a matter of if there will be rules that change how AI chips/components are exported, rather how severe those rules will be. Investors should be prepared for volatility as AI Diffusion rules will be set on or around May 15th.

I believe we will see near-term volatility but that ultimately AI companies in the United States will emerge stronger than they are today as we are all finally acknowledging that AI is not a fad, or a buzzword. Rather, the future of the country’s dominance relies on this technology succeeding, and conversely, relies on United States AI companies strategically denying AI systems to other countries. As an investor, you will never get a clearer signal as to the importance of a technology.

Overall, given volatility could be in our future as AI investors, this is a stock to watch closely should we get an even lower valuation, especially given where it's trading today is already quite cheap.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in AMD at the time of writing and may own stocks pictured in the charts.

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Q2 2025 Webinar Highlights

Posted on May 5, 2025June 30, 2026 by io-fund

Below are highlights from the I/O Fund’s recent Q2 2025 webinar from Lead Tech Analyst Beth Kindig and Portfolio Manager Knox Ridley. In the webinar, they cover the outlook for 2025, impact of tariffs, key factors for Nvidia, AI, crypto and other trends and catalysts the I/O Fund is closely eyeing to fill our new idea pipeline.

The webinars are not an earnings call or prediction, as anything can happen during an earnings season. It’s an opportunity for us to go over our fundamental research with our members.

Introduction, Impact of Tariffs on Growth

Kindig covers the material, fundamental shift that the market has faced recently, the possible impacts of tariffs on the tech sector, and why no tech stock may be immune.

2025 Portfolio & Pockets of Resiliency

Kindig discusses how the portfolio in 2025 will look different than 2024, how the I/O Fund is preparing for different scenarios, and what qualities stand out in tech stocks.

Nvidia’s Blackwell and Taiwan Semiconductor

Kindig covers what supply chain signals are telling investors about Nvidia’s Blackwell GPU shipments and delay, positive news for H2, and why TSM may be resilient due to its pricing power.

Energy & AI

Kindig discusses the massive projected increase in AI energy demand, why the US will prioritize energy, and how time to power is what matters most for the data center industry.

Bitcoin

Knox Ridley covers the outlook for Bitcoin, and signs that crypto demand is growing.

Bull & Bear Case

Knox Ridley recaps how the indexes have played out since the Q1 webinar, and discusses the I/O Fund’s bull and bear cases for the broader indices through the rest of 2025.

2025 Game Plan

Ridley discusses the I/O Fund’s game plan, how it is managing heightened volatility with hedges and deploying cash when the time is right.

Unlock Full Access to the I/O FundUnlock Full Access to the I/O Fund

Pro Members receive access to the I/O Fund’s portfolio, deep-dive research on all portfolio stocks, and quarterly earnings kickoff webinars.

Advanced Market Signals Members get regular technical and broad market analysis, weekly webinars from Portfolio Manager Knox Ridley, our hedge signal, and real-time trade alerts.

Exclusive Offer for Existing Essentials Members:Exclusive Offer for Existing Essentials Members:

Upgrade to the Advanced Annual Plan for just $599 and gain full access to everything above — including real-time trade alerts and our complete portfolio strategy.Advanced Annual Plan for just $599 and gain full access to everything above — including real-time trade alerts and our complete portfolio strategy.

To claim this limited-time offer or subscribe to the Advanced Plan, contact us at premium@io-fund.com. Learn more here.premium@io-fund.com. Learn more here.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

2025 Market Outlook: Why Stocks and Bonds Are Signaling More Volatility

Posted on May 2, 2025June 30, 2026 by io-fund

Just three weeks ago, we published the report The Fed Can’t Save This One: Why Bonds May Break The Stock Market. Here we asserted that the next move for the market was likely a bounce.

“While we see the potential for another leg lower in this bear market, we should see a sizable bounce first.”

Since the April 7th low, the S&P 500 is currently +16% higher, and in our target zone of 5600 – 6050. Now that we have reached our target zone for this bounce, we are shifting back into a defensive posture, using this bounce to raise more cash and layer back into our hedges.

U.S. Government bonds are suggesting something is broken as there are no meaningful buyers right now. When growth and inflation decelerate, the safety of a fixed yield in treasury bonds is historically where investors have flocked for 30 years. However, they are not getting bought, which is keeping yields high. Most concerning is that this is happening at the same time we are seeing an alarming deceleration in growth and inflation projections, led by a struggling consumer.  This is not normal behavior, and will continue to put pressure on the economy, as the U.S. still must refinance $9 Trillion of debt this year.

There are two things we are watching closely right now. The first is that if the bond market refuses to go higher, we will remain in a defensive posture, especially if growth and inflation continue to decelerate. The second is the technical setups in the broad markets, which we outline in detail in this report. These technical setups help us to not only manage risk but to also capture the upside. Our 210% cumulative return and 27.6% annualized return has been partly achieved through accurate broad market analysis, such as detailed below.

The 60/40 Stock Portfolio Isn’t Working – Why That’s a Problem

Due to advancements in technology, globalization and demographics, the last thirty years have been marked by a low inflationary environment. This backdrop led to a 30-year bull market in bonds. Bonds thrive when inflation is going down or only going up a small amount. A fixed yield is desirable in this environment and has been for a very long time. This type of secular environment also is the reason investors sought the safety of a fixed yield when prices were dropping sharply, creating the inverse correlation we are all so familiar with between bonds and stocks.

This is clearly shown in the chart below. Note as the PMI for Manufacturing began to drop, signaling a slowdown in economic activity, stocks soon followed, leading to drawdowns between 15% – 57% in the S&P 500. During these periods, you can see how government bonds moved inversely to these drops in both economic activity and stocks.

When growth decelerates, as shown by PMI manufacturing, stocks tend to correct. This pattern has led to bonds going higher every time since the year 2000, as investors seek a safe fixed yield. However, since 2022, this correlation broke and remains broken through early 2025.

This relationship was considered an axiom in portfolio management and even led to the 60/40 portfolio concept for long-term buy and hold investors that many still adhere to. However, something changed in 2021, which has persisted into today, which is also shown in the above chart.

For the first time in over 30 years, growth, stocks and bonds went down together. In 2022, inflation, as measured by the YoY increase in the CPI, rose to levels we had not seen since 1981. An inflationary environment like this, where prices are sharply moving higher, erodes the value of a fixed yield. Investors tend to sell bonds when inflation is high or expected to move higher.

U.S. Inflation, as measured by the YoY CPI, peaked at 9.1% in June of 2022, the highest reading since 1981. Since then, inflation has subsided, which should be beneficial to bonds.

The current narrative is that what happened in 2022 was a one-off issue, due to a meaningful disruption of the supply chains, as well as excess money pumped directly into global economies as a reaction to the disastrous COVID lockdown policies due to and everything should return to normal. This is reflected in the sharp drop in the CPI, which just posted a 2.4% reading, down significantly from the 9.1% peak in June of 2022.

While still off from the FED’s 2% target, the sharp decrease in inflation should support the long-bond trade. However, as stated before, bonds continue to test critical support, unable to get a meaningful bid.

Signs the Consumer is Under Pressure

The other element that dictates bond yields is economic growth. As shown above, when growth starts to fade and the economy weakens, a safe, fixed yield tends to be what investors flock to. Recent data suggests that the economy is fading, which is being led by a struggling consumer.

The U.S. Index of Consumer Sentiment just posted a reading of 52.

Consumer Sentiment is worse today than in 2008 and 2009 and was barely surpassed by the COVID panic. Source: YChartsYCharts

For reference, this is the type of reading we tend to see when in a recession. This is lower than any period in 2008 – 2009 and was surpassed at the COVID low with a reading of 50. The consumer feels horrible about the economy and their prospects in it, more so than some of the worst moments in modern markets.

One of the best pieces of data to show how tough it is for the average consumer can be found in recent Buy-Now-Pay-Later (BNPL) loans. These loans were typically designed for discretionary spending; however, according to LendingTree, 25% of all BNPL loans are being used to buy groceries. Furthermore, 41% of respondents have been late on their BNPL loans in the last year, up from 34% last year.

Keep in mind, the interest on some of these BNPL loans can be as high as 36%, depending on the creditworthiness of the borrower. These are not loans one wants to take on, especially for groceries, which signals the levels of desperation in pockets of the economy.

The same can be seen with credit cards. There is an alarming rise in delinquency payments that are 90 days or more past due, which recently reached a 14-year high and are still climbing.

With the potential of tariffs looming, we could see more pressure being put on the consumer in the near future. The Yale University Budget Lab recently announced that they estimate the cost of increased tariffs to the average American household will be an additional $3,800 this year, which is the equivalent of a 2.3% rise in prices.

What This Should Mean for Bonds

Consumers continue to exhibit signs of struggle, which are starting to show up in key earnings reports. For example, Walmart sees per share profit over the next year coming in as much as 27 cents below analyst projections. This realization sent company shares down more than 6% in midday trading. 

We are now seeing clear signals that growth is expected to slow down, as the consensus is expecting a recession. JPMorgan is now suggesting a 60% chance of recession in 2025 and that U.S. real GDP will likely decline in the second half of 2025.  This is all happening in a very tough to model environment with chaotic levels of uncertainty.

Yet, with inflation coming down, a struggling consumer, and increased expectations of a global recession, U.S. government bonds, the tried-and-true haven for this type of environment, are still not finding any buyers.

This is not normal market behavior. If we truly are seeing the correlation between bonds and stocks breaking, it will be a major inflection point in market dynamics. This will force proven risk models to be revised in real time. It is still too early to call, but since our last report, the correlation between stocks and bonds remains concerning, suggesting something larger is playing out

With $9 Trillion in debt to refinance, the lower bonds go, the higher yields will go until we find buyers. This means we will have to borrow just to service this debt. Considering that we now spend more on debt than defense, this would be a shock to both the economy and the stock market. If the bond market goes into a disorderly selloff, which is eventually what happens when it does not believe a country can pay off its debts without inflation, we could see the Federal Reserve have no choice but to step in to perform some type of yield curve control for the first time since 1941.

Levels and Technical Setups to Watch for the S&P 500

Anyone who has been following the I/O Fund’s broad market analysis over the last 6 months should not be losing sleep over the current bout of volatility. We offered consistent warnings as far back as October of last year in our report titled, Nvidia, Mag 7 Flash Warning Signs For Stocks.

“The warning signs are high, and my firm remains defensive until these signals reverse, or the market corrects.”

Following this analysis, we moved to 50% cash at the start of the year and even up to a 100% hedge position in February. Preparing our research members for this in weekly webinars was key as the market proceeded to retrace nearly all the bull market gains from 2024, officially entering bear market territory

However, in early April, we began removing our hedges and buying targeted A.I. stocks for the coming bounce. How the market corrects after this bounce is over will be telling on what is to follow. There are two scenarios that I am currently tracking:

Red: This is my primary expectation and what we are game planning around. This bounce is a correction within a larger downtrend. Once this bounce completes, the market should drop in a more direct 5-wave pattern. We would then see a retest of the April lows, and likely head toward the 4655 – 4335 region, which would set up a buyable low.
Green: This count would have us completing a larger correction within a bigger uptrend. If the coming drop is a messy/3-wave pattern that makes a higher low, we could be setting up for one more swing high into later this year, with targets between 6300 – 6500.

The most likely path for the S&P 500. The current bounce is coming to an end. How we correct from here will determine the rest of 2025.

If we zoom in, the bounce appears to have more room to run. The pattern is pointing to the 5700 – 5800 region, which should hit no later than mid-next week.

We are in the final swing of the April 2025 bounce, which is targeting the 5700 region.

Regarding the current bounce, there are warning signs that have us shifting into a more defensive posture. For one, several major indexes, which have a history of leading the broad market, are not joining the S&P 500 in this final move higher. Transportation stocks, Small Caps as well as my Financial Conditions index are all making lower highs while the S&P 500 pushed higher.

Key markets are not participating in the last swing of the April 2025 bounce. These markets tend to lead, suggesting that the bounce is running on fumes.

Seeing these divergences on a larger scale was one of several warnings the I/O Fund used to jump into a defensive posture early this year. We are now seeing the same patterns develop on a smaller time scale, which has us maintaining a cautious stance.

Levels and Technical Setups to Watch for the Bonds

If we look at TLT, the ETF that tracks long dated government bonds, it is flat to down since the S&P 500 topped in February. Furthermore, the pattern appears to be testing the $85 – $82 support region. If this region breaks, we should see TLT drop to $71 – $58, pushing yields well over 5% and past their 2022 high. If this does play out, it should be the last drop before a multi-month bounce takes place.

On the other hand, if TLT can hold the $95 – $82 support region, it will need to breakout over $97.50 to confirm that the low is in for bonds. This would set up a multi-month relief rally into the +$100 region. This would be the ideal scenario, as it would suggest that the correlation between bonds and stocks is realigning. It would also suggest that the bond market, in light of all the problems the U.S. treasury market is facing, is willing to look past this due to the growing concerns with economic growth.

The two most likely Elliott Wave counts for TLT. If we break below $82, then rates will spike to new highs. This will be a problem for equities.

Conclusion:

Uncertainty filtering into earnings, a weak consumer, growth slowing down, coupled with bonds not providing the much-needed counter relief they historically provide, are signs that this market has not found its footing yet.

Most certainly, the tech sector has many years of exciting developments ahead of it, especially in AI – an area where our firm has consistently been early and will continue to be. However, macro is in the driver’s seat and takes precedence for our investment strategy in the near-term. We will remain defensive until we get signs that a low is in, or we hit the targets outline in the next drop. When we do resume buying, it’s not unheard of to see a dozen or more trade alerts in one week.

If you went into this sell-off fully invested without any risk management plan, or if you are sitting on outsized losses and not sure what to do, we encourage you to attend our upcoming weekly webinar for premium members. Next Thursday, April 17th, at 4:30 ET. In this upcoming webinar, we will discuss our game plan regarding the remainder of 2025. We will list buy targets for great AI names as well as go over how we plan to raise cash and further hedge our portfolio if this bear market continues into 2026.

The I/O Fund is a leading tech portfolio with annualized return of 27.6% — which would rank us as #2 in the United States if we were a hedge fund. Learn more here.Learn more here.

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Bloom Energy: Strong Q1, FY Revenue Guide Maintained with Confidence

Posted on May 1, 2025June 30, 2026 by io-fund

Bloom Energy reported a solid Q1 beat, with revenue rising 39% YoY and Q1 positive adjusted EPS for the first time ever. Margins expanded strongly YoY, across all reportable segments, and management maintained its guide for a ~29% adjusted gross margin, implying more potential margin growth ahead.

The company reiterated their full year guidance, with many comments in the Q&A that showed a level of confidence that will be rare this earnings season. Management stated their sourcing is not dependent on China, their demand is expected to be unwavering in the face of tariffs, and their competitive positioning is second to none for on-site power as data centers continue to face a dire power situation that must be augmented with systems that avoid a “monolithic failure of one unit.”

Overall, Q1’s growth and FY25’s guide reflects improving fundamentals for Bloom, though they are still far from GAAP profitability.

Revenue Growth Exceeds Estimates at 39% YoY

Bloom delivered a record Q1 with 38.6% YoY revenue growth to $326.02 million, more than 11% ahead of the $293.35 million consensus estimate for 24.7% YoY growth. Revenue growth historically has been lumpy, but the 39% growth was a solid improvement from last year’s (-14.5%) YoY decline, benefiting from project timing.

Management stated that they expect revenue to be weighted in the back half of the year, with approximately 40% in 1H and 60% in 2H. This is currently reflected in quarterly revenue estimates, with Bloom expected to see sequential growth each quarter to exit the year at $621 million in Q4.

For FY25, management maintained its revenue guidance between $1.65 to $1.85 billion, for YoY growth of 19.1% at midpoint. According to the opening remarks, management is expecting a 40/60 split on revenue with slightly more revenue recognized in the second half.

The CEO used the word “confident” in many instances when discussing the full year guidance, such as this: " So, we stand by those numbers. We wouldn't likely reiterate that guidance if we didn't have strength in our conviction. So, it's a strong conviction that we can represent it. So, how we do it is internal to us, but the what we will deliver is what I can state with conviction to you. So, that's the key part that I want you to understand in terms of where our guidance is.”

Key Segments

When discussing end markets, Bloom Energy went into detail in the opening remarks to state they foresee no changes to AI data center demand. For example, even if capex were to slow, Bloom foresees AI data centers continuing to increase spend on power: “Even down the road, should there be a slowdown in the pace of investing, the total gigawatt gap is so large that it will not have a meaningful impact on Bloom's growth in this market.” They also detailed that Commercial and Industrial end markets would also have to continue spending on power. The pocket of weakness that BE foresees would be in the retail space, such as a “stretch out of decision-making cycles.” Ultimately it was stated that, “Based on the bottoms-up customer-by-customer forecast in these three segments, we remain confident in our previously provided 2025 revenue guidance.” The translation is that AI data centers can absorb any slowdown from the retail end market.

Product revenue, from fuel cell systems sales, rose 38.1% YoY to $211.8 million, compared to a (21%) YoY decline in the year ago quarter.
Installation revenue, when Bloom is ready for startup and commissioning new systems, surged 194% YoY to $33.7 million, supporting commentary that project timing aided the quarter’s performance.
Service revenue declined (5.2%) YoY to $53.6 million.
Electricity revenue rose 92% YoY to $27.0 million.

Gross Margins Show Strong YoY Expansion

Notably, gross margin has expanded more than 1,000 basis points from 17.5% last year to 28.7% this year. All four of Bloom’s segments reported positive GAAP and adjusted gross margins:

Product adjusted gross margin of 35.0%, up 930 basis points YoY.
Installation adjusted gross margin of 3.8%, up more than 3,300 basis points YoY.
Service adjusted gross margin of 4.8%, up 340 basis points YoY.
Electricity adjusted gross margin of 57.1%, up more than 2,500 basis points YoY.

For the full year, management held its 29% adjusted gross margin guide, implying some further strengthening though the remainder as the year as seasonal revenue strength begins to kick in.

Adjusted operating income posted a turnaround at $13.2 million compared to losses of ($30.7 million) last year. Adjusted operating margin was 4.0%, versus (13.1%) in the year ago quarter. Full year adjusted operating income is expected to be between $135 million and $165 million, for ~39% YoY growth at midpoint. EBITDA was $25.2 million compared to losses of ($18.2 million) last year.

While Bloom’s manufacturing is primarily US-based, management acknowledged that they import some materials and components, although not from China. Given the more geographically diverse 10% tariff in place, management expects up to a 100 bp impact to full-year gross margins if the current tariff structure persists throughout the year.

With that said, Bloom Energy is maintaining their gross margin guidance this year with management stating they will find ways to absorb this from cost cutting: “So, we are going to take this externality and make it a challenge to find that 100 basis points and other activities we do and speed it up and not use tariff as an excuse to not meet our guidance.”

Bloom Energy is not GAAP profitable yet, with a (5.8%) GAAP operating margin and a (7.3%) GAAP net margin, but this is certainly a strong beginning to what may be an important turnaround for the company.

First Ever Positive Q1 Adjusted EPS

Bloom reported its first ever Q1 positive adjusted EPS, earning a thin $0.03 this quarter. While Bloom is still expected to see positive adjusted EPS in each quarter of this year, estimates have been coming lower, especially for Q2.

At the end of January, Q2’s adjusted EPS estimate sat at $0.05, before getting revised lower to $0.04 in February. Now, the estimate next quarter stands at just $0.01, with the low end of analysts at a ($0.12) loss, which would likely reflect broader macro-related weakness and margin softness as Bloom is not expecting a high degree of impact from tariffs.

Cash and Balance Sheet

Given revenue is lumpy and typically seasonally strong in Q4, Bloom’s negative cash flows are to be expected in the first quarter. However, cash flows did improve on a YoY basis.

Operating cash flow was ($110.8) million in Q1, for a (34.0%) margin. This improved from a cash flow of ($147.3) million last year at a (62.6%) margin. For the full year, management is expecting operating cash flow to remain similar to 2024’s level at $92 million.
Free cash flow was ($124.9) million in Q1, for a (38.3%) margin, improving from ($168.7) million last year at a (71.7%) margin.
Unrestricted cash and equivalents totaled $794.8 million, while debt remained steady at $1.13 billion.

Earnings Q&A:

Confidence in Meeting FY Guidance:

What stood out on the call was management’s willingness to discuss their high level of confidence in meeting fiscal year guidance. Not only did they go into detail as to how they will absorb any economic impact, but they also made it crystal clear they are not dependent on China. At one point, management even used the words “extreme confidence” stating:

“So, we're super excited about this cycle. Extreme confidence in being able to meet those demands. And will certain projects shift in the short term? Maybe they will, but the amount of projects that get executed is plenty and enough given where we are for us to be able to meet the guidance. That's how we see it.”

Given so few companies will be able to illustrate confidence in a fiscal year guide, I’d like to share one more quote from the call:

“We have to book, build, ship and recognize revenue for a portion of our second half revenue in order to meet the guidance. Now, if we didn't have confidence in that entire process, including the bookings, and also timing, because timing means revenue recognition, we wouldn't be making this. So, very strong confidence based on everything that we see.”

In terms of demand dynamics, they also shared that it’s no longer a question as to whether data centers need on-site power – this helps management to reiterate their guidance.

“And let me explain a couple things here. The big shift, Andrew, that's happened in our business and I think it's worth taking the two extra minutes to explain this to you. It is — no longer do we see our customers, whether it is data centers or large factories, asking if on-site power is needed. That debate is over. The grid can only do so much in the short term, and without on-site power, people are not going to have power. That is no longer a question to us.”

In terms of competition, BE pointed toward 30MW and 50MW microturbines as the primary competitor, yet also stated these are not ideal compared to hydrogen backup power.

“There are many, many reasons why CCGT will not be a good choice for situations like this if they are not connected to the grid for them to load follow. And then, if they're not connected to the grid, remember, they have to be maintained, they have to be shut down, you cannot have a monolithic failure of one unit. So, if you build two of those to back it up, all those become super expensive.”

Not Dependent on China:

Part of the reason that Bloom can reiterate guidance is because the company has no reliance on China. After quite a bit of digging by analysts, it appears they literally have zero direct sourcing out of China that cannot be immediately sourced elsewhere.

“We have two manufacturing and assembly facilities and they are both located in the United States. Our products are proudly made in America. Yes, we do import materials and components from abroad, but not from China. The majority of our material spend is in custom-made components unique to us, which give us control over pricing and sourcing. We have excellent long-standing partners and are jointly invested in each other's success. If the current tariff structure continues throughout the year, we expect to see up to 100 basis point impact on our gross margin for the year.”

As discussed above, Bloom Energy plans to cut costs in order to aborb the 100 basis points, thus is not changing gross margin guidance this year.

One analyst pushed about a disclosure in their SEC filings on the use of “scandium in your fuel cell ink coatings” yet management stated they will instead source this elsewhere.

“So, the first thing for you to know is, like, number one, we are not dependent on China for scandium. I can state that very clearly. Okay. Number one. Number two, we get this from multiple geographies and multiple continents.”

Taiwan is a Growth Market

In the noisy backdrop about imports and tariff structures, it was interesting to hear a discussion from a United States company on how they will become an important exporter in the near term. In particular, Bloom pointed to Taiwan as a strong growth market as well as Europe.

“And if you look at Asia, we are really targeting Taiwan in a major way because the entire AI supply chain, the amount of growth that's happening in Taiwan in the face of them — in the face of their grid not being able to grow fast enough and deliver power and rising costs of power out there and then — and them depending quite significantly on natural gas as their source of, like, energy, all that fits very well for us.”

Additional Commentary on Deal Cycles

There were two notable conversations about deal cycles on the call. The first is that for larger utility deals such as the AEP deal it takes about nine months for the Public Utilities Commission (PUC) approval process. The second comment was that Bloom expects implementation cycles to “shrink” the more that utility backup power becomes exhausted from the sheer number of AI data center buildouts.

Conclusion:

Bloom Energy had an excellent earnings report – the best I’ve seen yet, which is saying a lot as Big Tech earnings were exceptionally strong last night. The market reaction may not be aligned with this takeaway as there was a minimal response, yet if Bloom Energy continues on this trajectory, that is sure to change.

The company reiterated its full year guidance while volunteering visibility into how they will achieve this, on top of a material turnaround in their fundamentals. They also offered commentary that matches what we presented in our Q2 webinar, which is that BE looks to be a rare yet important pocket of resilience in the tech sector.

We will, of course, be monitoring for any changes. Ideally, the company would be GAAP profitable and lower debt, but this is not a quality (or value) stock – it's a momentum stock with the goal of capturing the strong and sudden trajectory of AI data center power consumption the I/O Fund is expecting to see over the next 1-2 years. In that regard, last night’s report was nearly a perfect 10.

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Meta Q1: Bottom Line Shines While Top Line Growth is Decelerating

Posted on May 1, 2025June 30, 2026 by io-fund

Meta reported a strong Q1 with revenue nearly $1 billion ahead of consensus, while EPS grew 37% YoY versus expectations for less than 11% growth. Meta also boosted its capex outlook, signaling at least 73% YoY growth at midpoint after Q1 capex surged nearly 104% YoY.

The market is pleased with Meta’s results (today) yet it’s important to note that revenue growth has been decelerating, while key metrics are mixed with some decelerating on tough comps like ad impressions while ad pricing increased YoY by 4 points.

Overall, revenue growth of 16% is a strong report, yet this is down from 27% growth in the year ago quarter. Looking further out, Q2’s revenue guide only marginally topped estimates and pointed to a sequential deceleration to below 13% YoY. Notably, EPS growth is outpacing top line growth, which is fine by me.

All things equal, this is a strong report – yet the market will be weighing the future impact of tariffs on an advertising platform such as Meta. Therefore, the earnings report is unlikely to make a dent if tariffs persist.

Revenue Easily Tops Estimates, Q2 Guided to Decelerate QoQ

Meta handily beat the consensus estimate in Q1, reporting revenue growth of 16% YoY to $42.31 billion in revenue. Advertising revenue increased 16.2% YoY to $41.39 billion. However, this was Meta’s slowest growth rate since Q2 2023, although it comes against its peak 27% growth comp from last year.

For Q2, Meta guided for a wider range of $42.5 billion to $45.5 billion in revenue, representing YoY growth of 12.6% at midpoint, and only 0.5% ahead of consensus at $43.8 billion. This would mark a 3.4 point sequential deceleration and a nearly 10 point YoY deceleration. Meta added that the guidance also included a 1% YoY growth tailwind from FX.

Ad Pricing Grows YoY; Ad Impressions Soften YoY

Advertising key metrics also decelerated sequentially, supporting the guided revenue growth deceleration for Q2. Ad impressions increased just 5% YoY, slowing considerably from 2023’s peaks and facing a tougher comp at 20% YoY last Q1. Ad pricing increased 10% YoY, a 4 point acceleration from 6% a year ago.

The low impressions growth rate comes from broad-based geographic weakness:

US & Canada impressions growth was just 4%, down from 16% a year ago
Europe impressions growth was 5%, down from 12% a year ago.
APAC impressions growth was 9%, down from 28% a year ago.
Rest of World impressions growth was 1%, down from 17% a year ago.

US & Canada showed outstanding growth that carried rest of the regions. For next quarter, APAC will likely face some geopolitical ad spending risks from e-commerce clients despite returning to growth this past quarter.

US & Canada pricing increased 14% YoY, accelerating from 5% a year ago.
Europe pricing increased 9%, decelerating from 18% a year ago.
APAC pricing increased 3%, compared to a (3%) decline a year ago.
Rest of World pricing increased 17%, compared to 20% a year ago.

Meta’s Family of apps daily average people (DAP) increased 6% YoY to 3.43 billion, though average revenue per person (ARPP) recorded its slowest growth rate in at least six quarters at 10.4% YoY to $12.36.

Gross Margin Surpasses 82%, Operating Margin Dips Sequentially

Gross margin surpassed 82% in Q1, reaching its highest level since 2019 at 82.1%. Operating margin expanded 3.6 points YoY to 41.5%, though R&D expenses rose faster than revenue, increased 22% YoY to $12.15 billion, providing a slight headwind to margin upside.

It’s quite impressive that Meta can maintain operating margins >40% while still burning more than $4 billion/quarter on its Reality Labs division.

Meta also adjusted its operating expenses guide for the year, now seeing $113-118 billion in expenses, down $1 billion from its prior view for $114-119 billion. This slight decrease in operating expenses should provide a small tailwind to operating margin, assuming revenue growth does not decelerate dramatically.

Net margin also contracted sequentially as the high R&D weighed down the line. Net margin was 39.3% in Q1, expanding from 33.9% in the year ago quarter.

Sizable 23% EPS Beat in Q1

Meta reported a sizable earnings beat in Q1, with its $6.43 EPS beating the consensus estimate of $5.22 by over 23%. Q1 EPS grew 36.5% YoY, well ahead of the estimated 10.5% growth in the quarter.

Given the sheer size of the beat, YoY margin expansion and revenue guidance slightly above estimates for Q2, it’s likely that Q2 and FY25 EPS will be revised higher in the coming days. Q2’s EPS was expected to grow just 8.5% YoY to $5.60, while FY25 EPS was forecast to rise 3.7% YoY to $24.75 heading into Q1’s report. With the $1.22 beat, FY25’s estimate is likely to move back into the mid-to-high $25 range, or YoY growth in the high-single digits.

Operating Cash Flow Strong, FCF Impacted by Capex

Meta’s cash flow generation remained robust in Q1, with operating cash flow margin contracting only 1 point QoQ; however, free cash flow was impacted by Meta’s surging capex.

Operating cash flow was $24.03 billion in Q1, for a margin of 56.8%. OCF margin expanded nearly 4 points YoY.
Free cash flow was $10.33 billion in Q1, for a margin of 24.4%. This contracted 10 points YoY, from a 34.4% margin in Q1 2024, due to Meta’s surging capex.
Cash and marketable securities declined nearly 10% QoQ to $70.23 billion, as Meta spent $13.4 billion on share repurchases in the quarter.
Debt remained steady at $28.83 billion.

Capex Guide Boosted as Q1 Capex Surges 104% YoY

Capex was a key metric analysts were closely watching heading into Q1’s report, given that Meta was expected to see the highest YoY capex growth of Big Tech at 59% YoY, while fears of an AI spending slowdown have risen recently.

However, Meta squashed these fears, boosting its 2025 capex outlook as Q1 capex surged nearly 104% YoY to $13.69 billion. Meta now expects 2025 capex to accelerate 14 points to 73% YoY, raising its outlook to $64-72 billion, versus its prior view for $60-65 billion. At midpoint, this was a $5.5 billion increase.

Meta said the new outlook “reflects additional data center investments to support our artificial intelligence efforts as well as an increase in the expected cost of infrastructure hardware.”

Earnings Call Q&A:

United States Key Market for Meta AI:

Management was more open than usual in discussing their strategy around their standalone AI app. Primarily, they stated the near standalone app is aimed at United States users while the Meta AI integration with WhatsApp is popular with global users.

When pressed on how they plan to stand out given there are many AI apps, management stated something similar to our recent deep dive, which is that they plan to compete on personalization and context: “Right now, if the experience is unpersonalized, then you can kind of just go to different apps and get reasonably similar answers to different questions. But once an AI starts getting to know you and what you care about in context and can build up memory from the conversations that you've had with it over time, I think that will start to become somewhat more of a differentiator. So that's one thing that we think will matter.”

You can read more about Llama 4’s large context window here where it was stated: “Llama 4 Scout is cheap at $0.13 per million tokens according to Groq and can be deployed on a single H100 GPU, leveraging 16 experts. Scout can remember long threads and documents of up to 10 million tokens. This is the largest context window across LLMs available today.”

Management Shrugs off Impact from Tariffs

At the end of the call, Mark Mahaney attempted to push Meta’s management team to provide information on how the ad platform is being impacted by tariffs by specifically asking if auto was seeing softer ad spend at all. The CFO was careful to redirect, stating: “Mark, let me take your first question about other verticals. We generally saw healthy growth in most verticals in Q1. We did see some weakness in gaming and politics.”

Although subtle, I believe this answer was well-rehearsed and did not fully satisfy the important inquiry.

Earlier, the CFO stated this: “But our Q2 outlook reflects the trends we're seeing so far in April, which have generally been healthy. So it's very early. Hard to know how things will play out over the quarter and certainly harder to know that for the rest of the year.”

AI Coding Agents Will Reduce R&D Spend

The Mag 7 has taken a breather over the past few months and is largely lagging the broad market YTD. Some of this is because of massive capex spend, as the market is unsure of where the ROI will come from. However, I suspect Big Tech is already seeing massive productivity gains internally, which is why the bottom line continues to expand. As we saw tonight, EPS growth is outpacing revenue growth. This can be achieved by using AI to replace engineers, marketing and HR departments, for example. The first companies to replace humans with AI will naturally be the Mag 7 as they are far ahead in the AI race compared to enterprise companies.

There were hints on the call as to when the impact will be seen: “So I'd say it's basically still on track for something around a mid-level engineer kind of starting to become possible sometime this year, scaling into next year. So I'd expect that by the middle to end of next year, AI coding agents are going to be doing a substantial part of AI research and development. So we're focused on that.”

Conclusion:

Meta is supposedly no longer in the year of efficiency and is now in the year of AI, according to management. However, the efficiency is remarkable yet again this quarter. Although the company is decelerating from high growth in the past, the company has a big year ahead with ad improvements resulting in higher ad pricing, Meta AI standalone app recently launched (to be monetized next year), and its Llama 4 models, which are open source yet driving important productivity gains internally. Undoubtedly, the company has a lot of data for personalization and a highly engaged audience, marking two competitive advantages over other AI chatbots.

The company can certainly be affected by tariffs, which is something all investors must weigh. Management offered no help in that regard, but one can safely assume the longer we see elevated tariffs, the lower consumer spending will be, and in turn, the lower ad spending will be. We will monitor this as we go along.

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