Third-quarter revenue rose 45% to a record $13.4bn ($13.1bn expected). Growth was led by a 97% rise in Data Center revenue, to $8.5bn.
Adjusted operating profit rose 75% to $3.9bn ($3.7bn expected), as strong revenue growth and improved gross margins more than offset higher operating expenses.
Free cash flow fell from $1.5bn to $0.6bn, and net cash was $8.7bn at the end of the quarter.
For the fourth quarter, AMD forecasts revenue of around $17.0bn at the midpoint of guidance ($16.6bn expected).
The shares were up 7.3% in after-hours trading.
Our view
AMD is changing shape fast. Data centre sales now make up 64% of revenue, up from 28% three years ago, and management expects that to pass 80% next year. Group revenue is also forecast to grow by more than 80% in 2027, more than double the pace that AMD was targeting just a year ago. This is no longer a PC chip company with an AI side project.
Two parts of the data centre business are doing the heavy lifting. The first is AI chips. AMD started shipping complete AI computer racks this quarter, and Anthropic, Meta, Microsoft, OpenAI, and Oracle are among the early users. The second is server processors (CPUs), the general-purpose chips that handle everyday computing. AI agents rely heavily on these, and AMD expects sales to double next year.
That mix shift is reshaping AMD's economics. The data centre division earned an operating margin of 34% this quarter, more than double the 15% from PCs and gaming. Launching new products brings extra costs, and AI chips carry slightly lower margins for now. But every step up in the data centre share lifts group profitability. Management also expects revenue to grow at more than twice the pace of operating costs next year, which makes this a material and ongoing tailwind for margins.
The AI growth comes with some strings attached. AMD has given some of its biggest customers the right to receive shares as part of their deals, and much of the growth relies on a small group of buyers. That adds extra pressure to deliver on time, and at scale.
Demand on the AI side is strong, but the PC businesses are under pressure. Higher memory costs are weighing on demand, and a double-digit drop in PC shipments is pencilled in for next year. AMD is holding up better than rivals, which is encouraging. But with the data centre growing so quickly, weakness here has a limited impact on the bigger picture. It's one to watch, not one to focus on.
The shares have pulled back sharply during the past month, and the valuation (price-to-earnings ratio) has come down with them. A positive case doesn't need a return to 12-month highs, just for the expected earnings to arrive, and the growth on offer gives plenty of room for that.
Although this is not an immediate concern, we do expect the valuation to trend lower as AMD's product mix shifts closer to established AI chip names like Nvidia and Broadcom, which trade on much lower valuations. That logic curbs some of our enthusiasm.
Environmental, social and governance (ESG) risk
The semiconductor sector is medium-risk in terms of ESG. Overall, this risk is managed adequately in Europe and North America but has considerable room for improvement in the Asia-Pacific region. Its reliance on highly specialised workers means that labour relations is one of the key risk drivers. Other risks worth monitoring include resource use, business ethics, product governance, and carbon emissions.
According to Sustainalytics, AMD’s management of material ESG risks is strong.
AMD has relatively low ESG risk relative to both the wider sector and the global stock market. It is managing its own risk well, with board level oversight, strong environmental policies, and a robust whistleblower policy. There are also no ongoing events that pose a financially material risk to the business.
AMD key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember that yields are variable and not a reliable indicator of future income. Keep in mind that key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.