- AMD delivered a solid set of results
- Continued weakness in the Gaming, PC, and Data Center business units prevented a rally
- However, the company’s Q3 outlook suggests a faster recovery in Q3
Advanced Micro Devices (NASDAQ:AMD) shares were trading modestly higher Wednesday after the chipmaker reported its second-quarter results and offered a forward-looking outlook. While shares gained in the aftermath of the Q2 earnings report release, the stock pared gains amid a broad weakness in the tech sector on Wednesday.
For the second quarter, AMD reported adjusted EPS of $0.58, just ahead of the consensus for earnings per share of $0.57. For the same period last year, AMD reported a profit per share of $1.05. Revenue fell 18% year-over-year to $5.36 billion, but still marginally better than what the consensus was looking for ($5.32 billion).
Outlook Hints PC Market May Be Turning
Looking closer at the Q2 performance, AMD delivered a modest outperformance relative to analyst expectations despite weakness in the Data center and Gaming business segments. For the former, the company generated $1.32 billion in sales, down 11% YoY. AMD blamed “lower 3rd Gen EPYC processor sales as Enterprise demand was soft and Cloud inventory levels were elevated at some customers.”
“We delivered strong results in the second quarter as 4th Gen EPYC and Ryzen 7000 processors ramped significantly,” said AMD Chair and CEO Dr. Lisa Su.
Similarly, the Gaming segment revenue fell 4% to %1.6 billion on lower gaming graphics revenue. Weakness in these two business units was offset by a 16% YoY increase in the Embedded segment. AMD said it witnessed strength in the Industrial, Vision and Healthcare, Automotive, and Test and Emulation markets.
Finally, the company’s Client business unit continues to see its sales plunge. Revenue fell by 54% YoY to below $1 billion as the chipmaker once again faced lower processor shipments. AMD said the PC market was weak in Q2 while also flagging “a significant inventory correction across the PC supply chain.”
Overall, the company said its adjusted gross margin contracted by 400 basis points to 50%, in line with what the analysts were looking for. On the other hand, the adjusted operating margin topped analyst expectations by 50bps after coming in at 20%.
AMD stock initially leaped higher after the company said it expects to generate $5.7 billion in Q3 revenue (up or down $300 million). The midpoint of this revenue outlook range would imply a sequential acceleration of 6.3%, which hints the company believes the Q2 may have marked a bottom in the PC market weakness.
The chipmaker said it expects its Data Center and Client Segment business units to grow double-digit on a quarter-to-quarter basis “driven by increasing demand for our EPYC and Ryzen processors, partially offset by Gaming and Embedded segment declines.”
Citi analysts upgraded AMD stock to Buy from Hold following the Q2 earnings report.
"We thought AMD’s AI products (MI300) would be margin dilutive and investors would eventually care about the expensive valuation on AMD, and we were wrong on both counts," the analysts said in a note.
All Eyes on MI300
AMD is seen as the only real contender to Nvidia (NASDAQ:NVDA). According to a recent research report by the independent third-party company, AMD’s AI chips are about 80% as fast as those from Nvidia. MosaicML, an AI software startup, conducted a test comparing high-end chips from AMD and Nvidia.
The chips in question are AMD MI250 and the Nvidia A100. In the meantime, both companies have a new, better version of their predecessors.
"For most (machine learning) chip companies out there, the software is the Achilles heel of it. Where AMD has done really well is on the software side," Hanlin Tang, chief technology officer of MosaicML, said.
Back in June, AMD unveiled its Instinct MI300 APUs (accelerated processing units) that combine Zen 4 CPU cores with CDNA 3 GPU cores. The MI 300 Series accelerator family includes Instinct MI300X, which is AMD’s best shot at Nvidia when it comes to high-end chips that can fuel GenAI apps.
“The MI300X is based on the next-gen AMD CDNA™ 3 accelerator architecture and supports up to 192 GB of HBM3 memory to provide the compute and memory efficiency needed for large language model training and inference for generative AI workloads,” the company said.
AMD is forced to go all-in on GenAI chips and prevent Nvidia from having a clear shot at complete multi-year dominance in this highly lucrative market. Citi analysts forecast recently that Nvidia could have a 90%+ market share in the AI chips market in the years to come.
“The scenario is reminiscent of Intel (NASDAQ:INTC) vs AMD ten years ago when Intel had better performance and ecosystem and over 90% share,” Citi analysts told clients in a note.
AMD’s CEO Su tried to reassure investors about the company’s progress on this critical front, saying that AI engagements “increased by more than seven times in the quarter as multiple customers initiated or expanded programs supporting future deployments of Instinct accelerators at scale.”
“We made strong progress meeting key hardware and software milestones to address the growing customer pull for our data center AI solutions and are on-track to launch and ramp production of MI300 accelerators in the fourth quarter,” Su said in a press release.
Similarly, the “MI300” term was mentioned 36 times on the earnings call. She said that the company launched 30 new instances in Q2, including clients like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), and Alibaba (NYSE:BABA). Su also said that customer interest in MI300A and MI300X GPUs is “very high.”
Along these lines, the Q3 quarterly earnings report is critical for investors as the management should guide for Q4 sales. This is the quarter when it expects to start shopping Instinct MI300 accelerators. There’s also discussion of a potential AI chip export ban by US regulators, which, if any action were taken, would impact AMD’s outlook.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.