AMD Preview: AI chips, Data center in focus
3min read AMD is set to release its Q3 earnings report today after the market close, with a consensus estimate for adjusted EPS of $0.68, marking a 31% increase year-over-year, and revenue expected at $6.71 billion, up 16%. AMD’s guidance had previously set expectations between $6.4 billion and $7.0 billion, and investors will be closely watching for any updates on AI growth, as well as performance in the data center and gaming segments. Following recent AI demand booms, especially seen by key players like Taiwan Semiconductor, AMD's results will serve as an indicator of whether its AI business can keep pace with leaders like NVIDIA.
A major focus will be AMD's Data Center segment, especially regarding its MI300 series GPUs, as data center revenue surged last quarter by over 115% year-over-year. Investors are looking for AMD to further boost its AI guidance for this segment, with expectations that AI GPU revenue could exceed $4.5 billion for 2024. This segment’s growth is essential for AMD to close the gap with NVIDIA, whose YTD stock performance and market dominance in AI have outpaced AMD significantly.
AMD’s Gaming and Embedded segments are also under scrutiny, as both showed notable year-over-year declines last quarter, impacting AMD’s overall revenue growth. The company has struggled to lift its quarterly guidance significantly since 2022, and sustained weakness in these segments could pose a risk to its broader recovery, especially in an environment of sluggish PC demand and softening semiconductor market outlooks outside AI. Any commentary from AMD on improvements in these areas would be closely watched by analysts and investors.
Beyond earnings, AMD’s recent acquisitions, including ZT Systems and Silo AI, highlight its commitment to expanding in the AI and data center spaces, positioning itself to compete with NVIDIA and Intel. ZT Systems, in particular, offers AMD deeper inroads into hyperscale data centers and could accelerate AI deployment capabilities. However, analysts will want more insight into how these acquisitions might impact AMD's financials and competitive stance as it moves further into high-stakes AI markets.
AMD’s capital expenditures in AI, combined with its strategic acquisitions, align with the broader AI investment trends seen across the semiconductor industry, though risks remain. Companies like ASML and Texas Instruments have reported slower-than-expected recovery in non-AI segments, suggesting potential headwinds for AMD in areas outside its AI investments. With AMD aiming for data center dominance, the company’s ability to ramp up production and maintain competitive pricing will be a critical test.
At its recent "Advancing AI" event, AMD launched key products like the MI325 GPU and Turin CPU, while raising its AI accelerator total addressable market (TAM) forecast to $500 billion by 2028, up from $400 billion by 2027. Analysts noted the company's potential to secure a substantial share in the expanding AI market, despite a year’s delay behind NVIDIA’s current performance. While no immediate revenue forecast changes were announced, Piper and other firms see AMD as well-positioned for long-term growth, particularly in data center and GPU segments, and anticipate possible revenue guidance increases during AMD's upcoming Q3 earnings report.
AMD's Q2 results showed a solid performance with adjusted EPS of $0.69, slightly beating the estimate of $0.68, and revenue of $5.84 billion, surpassing expectations of $5.73 billion. Key growth drivers included a 49% increase in client revenue to $1.49 billion and a notable data center revenue jump of $2.83 billion, reflecting the ongoing demand in its core markets despite challenges in gaming and embedded revenue, which both saw year-over-year declines. AMD's MI300 series performed particularly well, prompting management to raise its full-year outlook for this AI-driven line to over $4.5 billion, a positive indicator amid cautious investor sentiment about demand volatility.
AMD's guidance for Q3 was mixed, showing slightly higher revenue estimates at $6.7 billion but a softer EPS outlook, with analysts noting lingering headwinds in embedded and gaming segments. The data center and AI-driven GPU markets remain AMD’s major growth areas, with the MI300 series alone contributing over $1 billion in the quarter and further gains anticipated as AMD continues to ramp up its roadmap, including the MI325X GPU and the next-generation 350 and 400 series expected in coming years. Analysts have adjusted their models to reflect these AI-driven growth opportunities but remain cautious about limited growth in certain segments, leading some to lower price targets slightly.
Despite a more restrained outlook in specific segments, AMD's momentum in data center and client CPU markets is driving expectations for strong long-term growth, with anticipated CPU market share gains in cloud and enterprise markets supported by the launch of the EPYC Turin processors. With ongoing investments in AI and data center solutions, AMD's strategic position appears solid, though investor focus on AI capex constraints and gaming weakness could impact sentiment. AMD’s valuation remains attractive relative to expected future earnings, and the company’s progress in AI positioning is seen as a key factor in sustaining this trajectory into 2025 and beyond.
Finally, market sentiment around AMD's AI and data center prospects could have implications for peers like Intel and NVIDIA, as AMD’s Q3 report will set a benchmark for expected market share shifts. If AMD reports robust growth in these areas, it could pressure Intel further, while affirming strong demand trends in AI for NVIDIA.
