AMD increased first quarter revenue by 36% to $7.4bn beating forecasts of $7.1bn. Data Center was the key contributor with sales rising 57% to $3.7bn.
Underlying operating profit was up 57% to $1.8bn helped by sales growth and cost control.
Free cash flow improved from $0.4bn to $0.7bn. Net debt was $1.3bn.
AMD expects sales of around $7.4bn in the second quarter but also to incur an $800mn charge relating to export controls to China. It’s also preparing for a $1.5bn impact to this year’s sales, but remains confident of strong double-digit growth this year.
The company repurchased $0.75bn of shares in the quarter.
The shares were up 1.7% in after-hours trading.
Our view
AMD’s first quarter numbers came in better than expected, but how much of that beat was down to Chinese customers trying to get ahead of trade restrictions wasn’t entirely clear. With China making up 24% of last year’s revenue mix, investors will be hoping that the negative impact in 2025 doesn’t end up being more than the $1.5bn estimated by the company.
We think Data Center sales will remain the key growth driver for some time to come, driven by not just the boom in all things Artificial Intelligence (AI), but also our relentless thirst for digital content. But under the surface, commercial traction is proving to be a little disappointing, suggesting that AMD is not likely to make a dent in the frontrunner’s market share any time soon.
That increases the risk of its technology becoming obsolete if it’s not adopted at sufficient scale. For now, that’s not deterring core customers such as Meta and Google. But growth in AI driven Data-Center sales will be a key factor for investors to monitor, and one that will be hard to track now that AI specific revenue is no longer being split out.
But in PCs and laptop processors the company is making greater strides towards catching the competition. These sit in the Client division where the integration of AI at the device level is helping to reignite growth after a torrid time for the personal computing industry.
There are other ongoing headwinds. Weak sales of AMD’s gaming chips are detracting from the strong growth seen elsewhere. And with no major console releases on the immediate horizon, this may remain the case for some time. There’s also weak demand from some customers in the Embedded segment like automobile manufacturers.
The pace of innovation in the industry is high and AMD is ploughing some $1.7bn per quarter into research & development. The strong balance sheet means it can afford to do this and stomach fluctuations in demand. However, there’s no dividend on offer nor any guarantee that the recent uptick in buyback activity can be sustained.
In terms of both commercial traction and technological prowess we think AMD has played a second fiddle at times to its closest rival NVIDIA. While AMD’s valuation does lag the peer group a little, it’s still not in bargain basement territory, which means there is some pressure for it to close the gap when it comes to growth rates. That leaves the shares a little exposed to any sign of a slowdown in business.
AMD key facts
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