AMD beat estimates by $110 million on the top line and was in line on adjusted EPS expectations of $0.92. Despite the beat in Q3, AMD guided for Q4 revenue slightly below consensus estimates at midpoint.
AMD is a fundamentally strong company with data center revenue growth accelerating for many quarters now, client revenue rebounded sequentially, and margins are improving. As Jean Hsu stated toward the end of the Q&A: “But when you look at our Data Center segment performance, we more than doubled the revenue year-over-year, but we tripled the operating income year-over-year.”
Regarding the Client segment, AMD and analysts acknowledged there may be consumer weakness in PCs from other companies, yet AMD stated they have the strongest PC line up in company history on the market today. This is evident considering Intel guided Q3 to be flat to down in their Client segment yet AMD’s growth was up 29% YoY and 26% QoQ to $1.88 billion.
The slight miss at the midpoint is likely due to Embedded, as Jean Hu, the CFO, stated next quarter would be: “driven by strong growth in our Data Center and Client segment, more than offset decline in the Gaming and Embedded segments.” It was further stated that embedded “demand continues recovering gradually, led by strength in test and emulation offset by ongoing softness in the industrial market.”
Revenue
AMD reported revenue of $6.82 billion in the third quarter, for YoY growth of 17.6%, a ~770 bp sequential acceleration from 8.9% YoY growth in the prior quarter. Data center drove Q3’s growth, while Client revenue rebounded significantly, offsetting continued weakness in gaming and embedded.
CEO Lisa Su said that AMD delivered “record revenue led by higher sales of EPYC and Instinct data center products and robust demand for our Ryzen PC processors,” with “significant growth opportunities across our data center, client and embedded” moving forward.
Looking ahead, AMD guided for revenue of $7.5 billion, +/- $300 million, for Q4, correlating to YoY growth of ~21.6% at midpoint, or a 400 bp sequential acceleration. While this fell just shy of the consensus estimate for 22.3% YoY growth to $7.55 billion, revenue growth is still expected to accelerate to the low-30% range in the first half of fiscal 2025.
Margins
As noted in our pre-earnings report, AMD’s margins continue to benefit from the increasing mix of data center products, primarily from EPYC CPUs as GPUs are currently dilutive to margins but will eventually be accretive to margins over time.
- Q3 gross margin was 50%, up from 49% last quarter and 47% in the year ago quarter. Adjusted gross margin was 54%, slightly ahead of the 53.5% guide, and increasing from 53% last quarter and 51% in the year ago quarter.
- For Q4, management guided for adjusted gross margin of 54%, flat sequentially.
- Q3 operating margin expanded to the double-digit range, at 11%, driven by increased data center mix – this compares to a 5% operating margin last quarter and a 4% margin in the year ago quarter.
- Operating income surged sequentially, with Q3’s operating income of $724 million up ~169% QoQ from $269 million. This was driven primarily by data center growth and margin expansion (covered below in Segments).
- Adjusted operating margin came in at 25%, in line with expectations, while management’s guidance implies Q4’s adjusted operating margin rises to nearly 27%.
- Q3 net income was $771 million, an increase of 191% QoQ and 158% YoY. Net margin was 11% in the quarter, up from 5% last quarter and last year. Adjusted net income was $1.50 billion, up 34% QoQ and 33% YoY, for a 22% margin.
EPS
GAAP EPS significantly improved in the quarter due to margin substantially improving, with operating and net margin both in the double digit range in the quarter.
- GAAP EPS of $0.47 beat estimates for $0.41, and represented YoY growth of 161% and QoQ growth of 194%.
- Adjusted EPS of $0.92 met estimates, and represented YoY growth of 31% and QoQ growth of 33%.
Given the revenue acceleration through Q4 and the first half of 2025 along with improved operating leverage from increased data center mix driving higher operating margins, adjusted EPS growth is expected to accelerate more than 40 percentage points to the mid- to high-70% range by Q2 2025.
Cash and Balance Sheet
Cash flows still have room to improve, as margins contracted in Q3, with AMD reporting operating and free cash flow margins falling by 100 bp QoQ. However, other line items, particularly accounts receivable and inventories, surged sequentially, hinting at potential strong growth ahead.
- Operating cash flow was $628 million in Q3, or a 9% margin. This compares to a 10% margin in both Q1 and Q2.
- Free cash flow was $496 million, or a 7% margin, versus an 8% margin in Q2.
- Cash and equivalents totaled $4.54 billion, while debt totaled $1.72 billion.
- Inventories totaled $5.37 billion, rising nearly 8% QoQ as AMD continues to ramp data center GPUs and move towards an annual release cadence.
- Accounts receivable surged 26% QoQ to $7.24 billion, after hovering in the $5 billion range for the last four quarters.
Segments
Data Center
AMD’s data center segment once again drove growth in the quarter, with management boosting FY24’s AI revenue target once more, now seeing AI revenue exceeding $5 billion, versus a prior view for $4.5 billion-plus in AI revenue. Management stated AI revenue is at $1.5 billion per quarter, or 22% of revenue.
Data center revenue accelerated 7 percentage points to 122% YoY, with AMD reporting $3.55 billion in revenue in the segment. QoQ growth was 25%, accelerating from 21% QoQ in Q2. AMD once again witnessed strong demand for AMD Instinct GPUs and EPYC server CPUs.
Data center’s operating margin continues to expand, with segment operating income rising 240% YoY and 40% QoQ to $1.04 billion. This was an operating margin of 29%, expanding from 26% last quarter and 19% in the year ago quarter.
Zen 5 Turin launched this month and will help support data center sales next year. Regarding the AMD versus Intel battle, Lisa Su made it clear that AMD continues to take market share: “We believe we gained server CPU share in the quarter as enterprise wins accelerated. Cloud providers expanded their use of EPYC CPUs across their infrastructure, and we began the initial ramp of fifth-gen EPYC processors” and that “Meta alone has deployed more than 1.5 million EPYC CPUs across their global data center fleet to power their social media platforms.”
The MI325X launched earlier this month with increased memory capacity and bandwidth, with AMD stating it offers 20% higher inferencing than the H200. The MI325X is in production shipment this quarter and “interest for MI325X is high.” The MI350 will launch in H2 2025 and the MI400s with CDNA Next architecture will launch in 2026. We had stated in our pre-earnings writeup that CDNA 4 and also CDNA Next architecture should be a defining moment for AMD in terms of narrowing the product road map with Nvidia.
Regarding the MI300 AI accelerators, Meta and Microsoft are large customers due to TCO advantages (total cost of ownership). Management also offered statements around RocM’s progress, stating that foundational support is growing and performance gains are improving by 2.4X.
Client Segment:
Though there were some weaker data points around PCs, as stated in the pre-earnings writeup, AMD is less of a concern in that regard as the company’s lineup is loaded with stellar releases. The company recently released the Zen 5 architecture including the Ryzen AI 300 laptops with a neural processing unit (NPU) with 50 TOPS of AI performance, and the Ryzen 9000 series for desktops – making them the most powerful units on the market today. Lisa Su stated it “this is the strongest PC portfolio we’ve had in our history.”
AMD’s ‘Zen 5’ Ryzen processors were met with “strong demand,” driving Client revenue up 29% YoY and 26% QoQ to $1.88 billion.
Although it looks like quite a sharp deceleration over the past two quarters, Client revenue has reached the highest level since Q2 2022. Client operating income also increased, up 97% YoY and 210% QoQ to $276 million; this represents an operating margin of 15%, up from 6% last quarter and 10% in the year ago quarter.
Management stated that AMD has “very high” share in the desktop channel, and that AMD “saw some of our highest sell-through.”
Gaming
AMD has still not escaped the trough in gaming, with revenue declining (69%) YoY and (29%) QoQ to $427 million. AMD said that the weakness was due to a decline in semi-custom revenue. Operating income for the segment also dropped substantially, falling to just $12 million, or a 3% margin, compared to a 12% margin last quarter and a 14% margin last year.
Embedded
Embedded revenue has begun to recover, following management’s comments last quarter about order patterns improving. Revenue in the segment rebounded 8% QoQ but declined (25%) YoY to $927 million. Operating margin for the segment was 40%, flat QoQ and down from 49% last year.
Earnings Call:
AI Revenue:
There was a question on the call about how large AI revenue is on a quarterly basis, to which Lisa Su provided more information, stating it exceeds $1.5 billion. The comment that the GPU business is approaching the scale of the CPU business will be key for investors to put into perspective, as it’s a big statement as we move into 2025.
Timothy Arcuri
I had a quick 1 and then a more intensive question. So the first one is I wanted to ask about the September actuals for Data Center GPU. It seems like it was in the $1.5 billion range. And that would put December in kind of the $2 billion range. Is that about right?
Lisa Su
So it's a pretty granular question, Timothy. But maybe let me help you with this. We actually did better in the Data Center GPU business relative to our initial expectations. So you would imagine that the business was actually greater than $1.5 billion. I mean we're actually seeing now our GPU business really approaching the scale of our CPU business.
-End Quote
There was an analyst on the call attempting to clarify if AI revenue would be flat QoQ.
Stacy Rasgon:
[…] You said it was approaching the size of Your compute business which you put around what under $1.7 billion, maybe a little more. Is that right? And like if that is right, it implies that at $5 billion for the year, you'd actually be down in Q4. So I'd probably got to be $5.2 billion or $5.3 billion for the full year, just to be flat sequentially and more than that to get growth […]
Lisa Su:
Right, Stacy. So first, a couple of things. You have to remember that in our Data Center segment, we have some other revenue that is not CPUs and GPUs, right? We have some FPGAs and other things. But the question earlier was the revenue of $1.5 billion, and I said that it was greater than $1.5 billion. So take that as a fundamental. And then as — we talked about — we didn't guide an exact number for the data center GPU. We said exceed $5 billion.
-End Quote
Lisa Su also stated: “What I would say about 2025 is we feel very good about the growth opportunities I would say that it might be lumpy. In general, these are large customer acquisitions and it's not always predictable exactly which quarters you would expect the significant build out.”
My comment: Lumpy to the upside … sounds bullish for next year.
Here was another time that Lisa Su clarified that the lumpiness would be to the upside: “So these are large customers that drive deployments. Like for example, the third quarter was a bit higher than we expected. That was driven by some additional customer demand, and we may see that type of lumpiness.”
There was a pointed question about how AMD plans to catch up to Nvidia’s product road map, to which it was stated: “I think MI300, when we launched it was behind H100, H100 was in the market for a much longer time. And we have with our accelerated road map actually closed a good part of that gap. I think MI325 is a great product. It's going to compete very well with H200 and the MI350 series will compete very well with Blackwell.”
It was also insinuated that Blackwell’s AI systems, which are more complex, could be a tailwind for AMD. “In the overarching view of the world, frankly, the market continues to be constrained, particularly in the newer product generations. It takes a long time to go from, let's call it, shipping your first samples to actually ramping in volume production workloads. And I think one of the advantages that we have with the — with our portfolio is that from a data center retrofit standpoint, it's actually a much easier ramp, just the infrastructure is the same.”
If we read between the lines, Lisa Su is stating that AMD is positioned to answer the overflowing demand from Blackwell, and in a way the supply chain can handle, as it’s well-known that Blackwell is running into wafer capacity limits compounded by a larger die size.
Lisa Su also echoed my understanding of roughly when AMD should narrow the product road map with Nvidia: “We feel very good about the progress I think next year is going to be about expanding both customer set as well as workload. And as we get into the MI400 series, we think it's an exceptional product. So — all in all, the ramp is going well, and we will continue to earn and — earn the trust and the partnership of these large customers.” The MI400 is on the new CDNA architecture and is ramping in 2026.
Margins:
As stated in the pre-earnings writeup, margins are an area where AMD and Nvidia offer quite a contrast. AMD’s data center margin is 29% with a company operating margin of 11% compared to Nvidia’s 60%. The guide is for flat margins next quarter. The CFO was encouraging in terms of what to expect for 2025: “When we scale the company next year, you can see we're going to benefit from economies of scale to continue to drive our operational efficiency to improve gross margin.”
Conclusion:
As we get more earnings reports this quarter, it should become evident that AMD’s Client growth is unusually strong and is truthfully a defining moment. Remember, we had pulled PC data that showed flat to negative PC growth YoY for Q3 industry wide. In the pre-earnings report, I had stated AMD is incrementally stronger and could go unscathed, but this is quite the growth in a quarter where unit sales were flat to declining industry wide. We will not lose sight of this incremental strength as we plan for 2025.
Regarding AMD’s GPU story … slowly but surely, AMD will show the market it should take the company seriously. These things take time. It was our understanding going into this report that the 2025 MI350s and 2026 MI400s is when the product release cycle will start to narrow with Nvidia, and this was echoed on the call.
On the AH price action, we had pointed out on the Q4 webinar that SMH was looking unusually weak. Whether it’s due to potential tariffs or potential consumer-facing weakness in the semiconductor industry, or a combination of both, I’m not sure. But the point is that I do not believe AMD is selling off for reasons that are specific to the stock. The earnings report was strong, and we will look to keep this as a leading position for next year.
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