AMD Q1 2025 Earnings: Solid Beat Overshadowed by Margin Pressures and China Headwinds

Advanced Micro Devices (NASDAQ: AMD) delivered better-than-expected first-quarter 2025 results, with revenue rising 36% year-over-year to $7.44 billion and adjusted EPS of $0.96 topping the $0.94 consensus. Gross margins hit 54%, right in line with expectations. Despite the strong headline numbers and an upbeat Q2 guide, shares initially gained over 6% in after-hours trading before giving back much of those gains as investors digested margin pressures and the lingering impact of China export restrictions.

Headline Results

AMD reported Q1 revenue of $7.44 billion, above consensus estimates of $7.12 billion, and a 3% sequential decline. Adjusted EPS came in at $0.96 versus the $0.94 consensus. Gross margins stood at 54%, flat year-over-year and sequentially, and in line with AMD’s guidance. The company continues to execute well on top-line growth, particularly in the Client and Data Center segments, but margin commentary signaled some pressure from mix and export-related dynamics.

Segment Performance

The Data Center segment generated $3.67 billion in revenue, up 57% year-over-year but down 5% sequentially. This result slightly beat internal forecasts but highlighted the beginning impact of export controls on China-bound MI300 GPUs. The Client segment was a standout again, with revenue of $2.29 billion, up 68% from a year ago and only modestly down from Q4. AMD CEO Lisa Su noted the strength came from “premium ASP mix,” not tariff pull-ins, setting it apart from rival Intel.

Gaming segment revenue came in at $647 million, up 15% sequentially but down 30% year-over-year, as the business continues to bottom out. Embedded revenue declined 11% sequentially to $823 million, missing estimates, with weak industrial demand cited. Embedded remains high margin but was offset by stronger growth in lower-margin PC and gaming chips.

AI and China Commentary

AI continues to be the focal point for AMD’s long-term story. Management reiterated confidence in the MI350 ramp, noting strong customer interest and projecting a broad deployment in the second half of 2025. Su mentioned that “key milestones” had been passed in April for ramping production at TSMC’s Arizona fab, with shipments expected later this year.

However, the export controls on the MI308 GPU to China are taking a toll. AMD estimated a $1.5 billion revenue headwind for 2025 from the licensing restrictions, with $700 million hitting in Q2 and most of the remainder expected in Q3. There was no update on licensing mitigation or product alternatives for China, and management noted that they expect “very little impact in Q4,” implying resolution by year-end.

Margins, Cash Flow, and CapEx

Gross margins came in at 54%, flat from the prior quarter and matching consensus. However, on a GAAP basis (including stock comp), gross margin was 53.6%, down 38bps sequentially. Operating income was $806 million, with adjusted operating margin of 26%. Free cash flow totaled $1.09 billion, while CapEx rose 50% year-over-year to $208 million. R&D spending rose 13% to $1.71 billion, as AMD continues investing in its AI roadmap and supporting the ZT Systems acquisition for rack-scale capabilities.

Q2 2025 Guidance

AMD guided Q2 revenue to a midpoint of $7.4 billion, above consensus of $7.23 billion, despite factoring in a $700 million headwind from China export restrictions. Gross margins are expected to remain steady at 54%, although several analysts flagged the potential for mix-driven compression if Data Center declines while Client and Gaming ramp. Client and Gaming are expected to grow double digits sequentially, while Embedded should remain flat. Data Center is expected to decline due to China GPU constraints.

Market Reaction and Analyst Commentary

Shares of AMD popped over 6% in after-hours trading before retreating as margin guidance and the China narrative tempered enthusiasm. Bank of America upgraded the stock to Buy with a $120 price target, citing compelling valuation, potential for 20%+ topline growth in 2025–2026, and upside from the MI350 launch. Stifel reiterated a Buy with a $132 PT, noting that the strong guide despite China disruption signals operational resilience.

Still, skeptics remain. Some firms maintained Neutral ratings, pointing to underwhelming margin leverage, slowing AI growth in 1H25, and the risk that Client segment strength reflects inventory pull-ins. One analyst flagged that AI margins remain below corporate average, and warned that AMD’s story “remains a show-me” heading into the back half.

Conclusion

AMD delivered a strong print on revenue and earnings, powered by continued strength in the Client segment and solid Data Center execution despite geopolitical headwinds. The upbeat Q2 guide, particularly in the face of a known $700 million China hit, reflects underlying demand and operational discipline. However, the margin narrative and ongoing uncertainty around AI monetization and competitive positioning—especially versus Nvidia—kept investor enthusiasm in check.

Looking forward, AMD’s ability to drive meaningful AI revenue growth in the second half, maintain pricing power in PCs, and manage China-related downside will define the stock’s path. With MI350 and MI400 on deck and hyperscaler interest growing, AMD is building momentum—but the market wants proof that it can convert roadmap into results.