The chipmaker’s data center revenue rose 122% year over year, driven by continued strong demand for its artificial intelligence (AI) chips that compete with chips from larger rival Nvidia.
Shares of Advanced micro devices (AMD 3.96%) fell 7.6% in after-hours trading on Tuesday, following the chipmaker’s release of its third-quarter 2024 report. The stock’s decline is largely attributable to fourth-quarter revenue expectations that came in slightly lower than Wall Street expected.
In terms of third-quarter results, revenues were slightly better than analysts’ consensus estimates, while adjusted earnings were largely in line with estimates.
On the upside, management increased its forecast for revenue from data center chips with artificial intelligence (AI) enabling graphics processing units (GPU) in 2024. It now expects this metric to exceed $5 billion, compared to expectations from more than $4.5 billion in July, CEO Lisa Su said on the earnings call. Management has regularly raised this forecast, which was $4 billion in April and $2 billion early this year.
Advanced Micro Devices key numbers
| Metric | Q3 2023 | Q3 2024 | Change YOJ |
|---|---|---|---|
| Gain | $5.80 billion | $6.82 billion | 18% |
| GAAP operating income | $224 million | $724 million | 223% |
| Adjusted operating result | $1.28 billion | $1.72 billion | 34% |
| GAAP net income | $299 million | $771 million | 158% |
| Adjusted net profit | $1.14 billion | $1.50 billion | 33% |
| GAAP earnings per share (EPS) | $0.18 | $0.47 | 161% |
| Custom EPS | $0.70 | $0.92 | 31% |
Data source: advanced microdevices. GAAP = generally accepted accounting principles. YOY = year after year.
Growth was driven by strong performance from the data center and customer segments. Investors should focus on the adjusted figures as they exclude one-time items.
Wall Street was looking for adjusted earnings per share of $0.91 on revenue of $6.71 billion, so AMD modestly exceeded revenue expectations and essentially met the bottom-line estimate. (I say “essentially met” because it exceeded the estimate by only $0.01, or about 1%.) The company also exceeded its own revenue guidance of $6.7 billion. (It does not provide profit prospects.)
In the quarter, AMD generated $628 million in cash for its operations, up 49% from the same period last year. It ended the quarter with cash, cash equivalents and short-term investments of $4.54 billion, compared to $5.34 billion in the previous quarter. The company ended the period with long-term debt of $1.72 billion, unchanged from the previous quarter.
The decline in cash, cash equivalents and short-term investments was driven by a cash outflow of $548 million in the quarter related to the Silo AI acquisition, which closed in August. Before being bought by AMD, this company was reportedly the largest private AI laboratory in Europe.
AMD’s segment performance
| Segment | Q3 2024 Revenue | Change YOJ | Change QOQ |
|---|---|---|---|
| Data center | $3.55 billion | 122% | 25% |
| Client | $1.88 billion | 29% |
26% |
| Gaming | $462 million | (69%) | (29%) |
| Embedded | $927 million | (25%) | 8% |
| Total | $6.82 billion | 18% | 17% |
Data source: advanced microdevices. YOY = year after year. QOQ = quarter over quarter.
Data center revenue marked the fourth consecutive quarter, largely due to strong increases in production and shipments of Instinct MI300 GPUs. AMD introduced the Instinct series in the fourth quarter of 2023 to compete Nvidia‘s data center GPUs, which dominate the data center AI chip market. An increase in sales of EPYC central processing units (CPUs) also contributed to the segment’s growth.
The annual and sequential growth of the customer segment was mainly driven by sales of Ryzen processors. This segment sells chips for personal computers (PCs).
The gaming segment continues to struggle, largely due to a decline in semi-custom revenues, i.e. revenues from the sale of processors for consoles.
Embedded segment revenue declined year-over-year, but sequential revenue increased. The decline is due to customers continuing to normalize inventory levels following delays in some end markets, particularly in the automotive and industrial sectors. The sequential increase is due to an improving demand environment for some end markets.
AMD’s fourth quarter guidance
For Q4, management provided guidance for:
- Revenue of $7.5 billion, representing 22% year-on-year growth and 10% sequential growth.
- Adjusted gross margin of 54%. For context, this metric was 54% in the just-reported third quarter.
Going into the report, Wall Street had been modeling fourth-quarter revenue of $7.54 billion, so AMD’s outlook fell just slightly short of this estimate.
A good overall report
AMD has delivered a good third-quarter report. In a particularly positive sign, adjusted EPS growth was significantly stronger than revenue growth, reflecting a growing profit margin.
Revenue and margin expectations for the third quarter were solid, even if the revenue outlook was slightly lower than Wall Street expected.
The after-hours stock sell-off may seem like an overreaction to some investors, as AMD’s fourth-quarter revenue guidance was slightly lighter than Wall Street expected. However, this dynamic is explainable in the context of the recent rise in AMD stock. Over the one-year period through Tuesday’s regular trading session, AMD shares rose 72%, outperforming S&P500‘s return of 42%. Given this strong performance, investors have high expectations.
A stock worth a place on your watchlist
I’ll reiterate my closing after AMD’s latest quarterly report:
Nvidia stock remains my favorite AI stock, but the space for AI chips and related technology is growing so quickly that there’s room for more than one big winner. AMD’s results since launching its Instinct GPUs late last year have been promising.
