AMD Q2 Earnings and Growth Momentum: A High-Conviction Long-Term Play in AI and Data Centers

Advanced Micro Devices (AMD) delivered a mixed but telling performance in Q2 2025, with revenue surging 32% year-over-year to $7.69 billion—its highest quarterly total ever—while navigating headwinds in its AI segment. For investors, the question is whether AMD's growth in data centers and AI can sustain its momentum amid geopolitical risks and intense competition. The answer lies in the interplay of short-term challenges and long-term strategic bets.

The Data Center Engine: A Sustainable Growth Catalyst

AMD's data center revenue grew 14% YoY to $3.2 billion, driven by strong demand for Epyc CPUs and expanding market share in cloud and enterprise markets. This segment is now the backbone of AMD's growth, with CEO Lisa Su noting “strong forecasts for compute from our largest customers.” The company's ability to outperform revenue expectations despite AI-related setbacks underscores the resilience of its data center business.

Key to this success is AMD's focus on differentiation. The Epyc 9004 series, with its 128-core Zen 5 architecture, has gained traction in cloud infrastructure, while partnerships with hyperscalers and enterprise clients are solidifying its position. With nearly 1,200 Epyc-powered cloud instances globally, AMD is capitalizing on the shift toward heterogeneous computing and AI workloads.

AI Segment: Navigating Export Restrictions, Building for the Future

The AI segment, however, faced a significant headwind: U.S. export restrictions on the MI308 AI accelerator to China. This ban, which cost AMD $800 million in Q2 and led to an operating loss of $155 million, highlights the vulnerability of its AI business to geopolitical policy. Yet, AMD's response to this challenge—accelerating the development of the MI350 and MI400 series—positions it as a long-term winner in the AI arms race.

The MI350, already in shipments since June 2025, is gaining traction for its competitive edge in both training and inference workloads. Meanwhile, the upcoming MI400 series promises 40 petaflops of FP4 performance and 50% more memory bandwidth than rivals. These advancements, coupled with the Helios AI rack (set to launch in 2026), suggest AMD is building a moat around its AI offerings. Su's assertion that “seven of the top 10 model builders use Instinct” further validates the company's ecosystem momentum.

Margin Pressures and Strategic Trade-Offs

AMD's adjusted gross margin of 43% in Q2 was below its long-term target, primarily due to costs tied to export controls. However, the company emphasized that its margin would have been 54% without these constraints. This discrepancy underscores the importance of monitoring regulatory developments. If the Trump administration's rumored reversal of the MI308 ban materializes, AMD could see a significant revenue boost in 2026.

For now, investors must weigh the near-term drag against AMD's long-term vision. The company's Q3 revenue guidance of $8.7 billion (±$300 million) reflects confidence in its core businesses, even as AI revenue remains constrained.

Why AMD is a High-Conviction Long-Term Play

1. Product Pipeline Leadership: The MI350 and MI400 series, along with the Helios AI rack, position AMD to challenge Nvidia's dominance in high-performance computing.
2. Market Share Gains: Epyc's growth in cloud and enterprise markets is a durable tailwind, with hyperscalers increasingly prioritizing performance and cost efficiency.
3. Scalability of AI Business: Despite current export restrictions, AMD's AI segment is on a path to scale to “tens of billions of dollars in annual revenue,” per Su.
4. Strategic Flexibility: The company's ability to pivot from AI chips to CPUs and gaming GPUs (which grew 73% YoY to $1.1 billion) provides a buffer against sector-specific downturns.

Risks and Considerations

• Geopolitical Uncertainty: Delays in resuming MI308 shipments could prolong AI revenue underperformance.
• Nvidia's Dominance: The GB200 and Blackwell architectures remain formidable competitors.
• Execution Risks: The transition to the MI400 series must be smooth to maintain customer trust.

Investment Thesis

AMD's Q2 results reinforce its status as a high-conviction growth stock. While near-term margin pressures and AI export restrictions are valid concerns, the company's product roadmap, market share gains, and long-term AI ambitions create a compelling case for investors with a 3–5 year horizon. The key is to monitor regulatory developments and execution on the MI400 and Helios timelines.

For those willing to stomach short-term volatility, AMD's combination of innovation, strategic agility, and scalable growth drivers makes it a standout in the AI and data center space. As Su aptly put it, the company is “building the most advanced GPUs ever,” and the rewards for early believers could be substantial.

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