Advanced Micro Devices, Inc. (NASDAQ: AMD) reported record third-quarter revenue on Tuesday that beat analysts' estimates, and forecast fourth-quarter sales above expectations as revenue from its data center chips nearly doubled.
Revenue rose 45% to $13.4 billion in the quarter ended Sept. 26, above the $13.09 billion analysts had expected, according to LSEG data. Adjusted earnings per share rose 74% to $2.09, while net income nearly doubled to $2.4 billion.
The Santa Clara, California-based chipmaker expects fourth-quarter revenue of about $17 billion, plus or minus 3%, compared with analysts' average estimate of $16.23 billion. The outlook came a week after rival Intel forecast its chip revenue to decline in the mid-20% range for the fourth quarter. AMD shares rose 8% in extended trading on Tuesday.
"We see demand across the data-center business, across our CPU business, as well as our data-center AI business," Chair and CEO Lisa Su told analysts on a conference call. "And when you look at the rate and pace of that growth, we've been planning for it for the last several years."
#AMD Data Center Revenue Nearly Doubles to a Record $8.55 Billion
Data center revenue rose 97% to a record $8.55 billion, above estimates of $8.2 billion. AMD said the gain came from demand for its EPYC server processors and the launch of its Instinct MI450 Series GPUs, the graphics chips used to train and run AI models. The segment's operating income rose to $2.9 billion from $1.1 billion a year earlier.
AMD designs processors and graphics chips for data centers, PCs, game consoles and embedded systems. It is challenging Nvidia in the market for AI chips.
The company said Anthropic, Meta, Microsoft, OpenAI and Oracle Cloud Infrastructure are running models and workloads on its first Helios systems, which combine its GPUs and server processors into complete data center racks.
Profit grew faster than sales. Adjusted gross margin rose to 56% from 54%, which AMD attributed to a richer product mix, and adjusted operating income reached a record $3.9 billion, up 75%. The results showed "the significant operating leverage in our business model as our Data Center business drives scale," Jean Hu, AMD executive vice president, chief financial officer and treasurer, said in the earnings release.
#Gaming Sales Drop 40% as AMD Client and Gaming Unit Misses Estimates
Client and gaming revenue fell 8% to $3.72 billion, below estimates of $3.79 billion. Gaming revenue dropped 40% to $773 million on lower sales of semi-custom chips, the processors AMD builds for game consoles, and graphics cards. Client revenue rose 7% to $2.9 billion, helped by Ryzen laptop processors.
Embedded revenue rose 29% to $1.1 billion, which AMD said was led by aerospace and defense, automotive, communications and industrial markets.
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#AMD Expects Revenue to Grow More Than 80% in 2027
On the call, Su said AMD expects total revenue to rise more than 80% in 2027, compared with the 77% growth analysts estimate, according to LSEG. She said data center chips will make up about 80% of next year's sales and drive most of the company's revenue and earnings growth.
AMD expects fourth-quarter adjusted gross margin of about 55%, in line with estimates of 55.27% and down from 56% in the third quarter. In the release, Su said the company expects "growth to accelerate further in the fourth quarter as we scale Helios and 'Venice' production," referring to its rack systems and next-generation EPYC server processors.
AMD also agreed to acquire World Labs, an AI model research company, and Taalas, which develops inference chips, the chips that run trained AI models. Both deals are expected to close by the end of 2026, subject to regulatory approvals and customary closing conditions.
The quarter tied up more cash. Free cash flow fell to $554 million from $1.53 billion a year earlier as inventories rose 35% from the prior quarter to $11.5 billion and receivables climbed 26%. Total debt rose to $7.1 billion after a $4.75 billion notes offering in August, while cash and short-term investments reached a record $15.8 billion.
GAAP results also included about $1.2 billion in noncash charges tied to the changing value of warrants AMD issued to certain customers, which the company said is driven by its share price and other valuation assumptions.
AMD forecast fourth-quarter revenue of about $17 billion and expects growth to accelerate as Helios and Venice production scales, though export regulations, the supply of components such as memory, manufacturing yields and the possible loss of a significant customer remain key risks to the outlook.