Advanced Micro Devices (AMD, Financial) jumped 5% today after surpassing analyst earnings estimates for Q2, with a significant revenue beat and in-line Q3 guidance. The CPU and GPU designer had been experiencing a roughly 25% sell-off in recent weeks, impacted by a broader market correction, particularly in tech stocks. However, AMD's Q2 results highlighted accelerating demand for AI, boosting its stock and positively affecting competitors like NVIDIA (NVDA, Financial), Intel (INTC, Financial), and Arm Holdings plc (ARM, Financial).
- AMD posted adjusted EPS of $0.69 in Q2, with revenue growing 8.9% year-over-year to $5.84 billion, marking a solid top-line upside after last quarter's in-line performance.
- AMD's Data Center segment saw exceptional revenue growth in Q2, increasing by 115% year-over-year and 21% sequentially to $2.8 billion. The company's flagship GPU, the MI300, surpassed $1.0 billion in revenue for the first time, driven by expanded use from Microsoft (MSFT, Financial). Due to strong demand, AMD raised its FY24 Data Center GPU revenue forecast to $4.5 billion from $4.0 billion. The MI300's successor, the MI325X, is expected to ramp up after this year, potentially maintaining the Data Center's upward momentum.
- AMD's Client segment also experienced healthy growth, with revenue increasing by 49% year-over-year and 9% sequentially to $1.5 billion, supported by robust PC demand. Although AI PCs launched recently, AMD does not expect significant revenue impact until more products are added across multiple price points, possibly in 2025. Nevertheless, AMD is entering the seasonally strong PC months as back-to-school season approaches.
- Gaming and Embedded segments were the usual laggards in Q2, declining by 59% and 41% year-over-year, respectively. In Gaming, semi-custom demand remained soft as gaming consoles entered their fifth year. AMD expects sales to be lower in the second half of 2024 compared to the first half. In Embedded, AMD noted that Q1 marked a bottom, with signs of improving order patterns during Q2, leading to a gradual recovery in the second half of 2024.
- With Data Center and Client segments leading, AMD anticipates another quarter of accelerating growth in Q3. The company projected revenues of $6.4-7.0 billion, a 15% improvement year-over-year and sequentially at the midpoint.
AMD's Q2 results were notably better than the previous quarter, reenergizing its stock today. The company's increased FY24 Data Center GPU revenue target also bodes well for NVDA, which reports its July quarter numbers late next month. However, there remains an issue with AI monetization. Given the capital invested in AI, customers must eventually see a healthy return on investment. For this to happen, end-consumer prices will likely need to rise but stay below the current cost of performing a certain task without AI.
Still, as AMD mentioned during its Q2 call, investing in AI is essential due to its massive potential. So far, demand for AI has shown no signs of slowing. Unless this changes, AMD is well-positioned to rebound from its recent correction.
