Advanced Micro Devices (AMD) reported its Q2 earnings with EPS of $0.69, beating the analyst estimate of $0.68. Revenue for the quarter was $5.84 billion, surpassing the expected $5.72 billion and reflecting an 8.9% year-over-year increase. The company also provided a strong Q3 revenue forecast of approximately $6.7 billion, plus or minus $300 million, which is above the analyst estimate of $6.61 billion. This guidance suggests a 16% year-over-year growth and a 15% sequential growth.
Shares of AMD came under initial selling pressure as the top and bottom line results and guidance failed to impress. However, the stock would rebound as analysts took a deeper dive and were impressed with the company's data center revenue growth. It suggests the company is making in-roads into Nvidia's (NVDA) market. AMD CEO Lisa Su said on the call that corporate spending on AI suggested there was no slow down which might suggest plenty of business for both chip giants.
Breaking down the performance by segments, the Data Center segment stood out with record revenue of $2.8 billion, a 115% year-over-year increase and a 21% sequential rise. This impressive growth was primarily driven by a steep ramp-up in AMD Instinct GPU shipments and strong sales of 4th Gen AMD EPYC CPUs. The success in the Data Center segment is significant as it positions AMD as a formidable competitor to Nvidia, particularly in the AI space.
The Client segment also performed well, generating $1.5 billion in revenue, up 49% year-over-year and 9% sequentially. This growth was mainly driven by strong sales of AMD Ryzen processors. However, the Gaming segment saw a substantial decline, with revenue dropping 59% year-over-year to $648 million, which was slightly above the estimate of $646.8 million. The decrease in semi-custom revenue contributed to this decline.
Embedded segment revenue was $861 million, down 41% year-over-year as customers continued to normalize their inventory levels, although it saw a 2% sequential increase. The overall gross margin was 53%, matching the estimates, and the capital expenditure for the quarter was $154 million, up 23% year-over-year.
Despite these concerns, AMD's outlook for the second half of the year remains positive. The company expects to deliver strong revenue growth, led by demand for its Instinct, EPYC, and Ryzen processors. CEO Lisa Su emphasized that the rapid advances in generative AI are driving significant demand for compute power across all markets, creating growth opportunities for AMD’s AI solutions.
In summary, AMD's Q2 performance demonstrated robust growth in key segments, particularly in the Data Center, which is critical for its competition with Nvidia. The positive revenue and EPS beats, coupled with strong guidance, highlight AMD's potential to continue its upward trajectory, despite the challenges posed by rising costs and intense competition in the AI and semiconductor markets.