AMD reports weaker-than-expected earnings even as revenue tops estimates

Advanced Micro Devices (AMD) reported its quarterly earnings on Tuesday, revealing results that fell short of market expectations. Following the announcement, the company's stock experienced a decline of approximately 5% during after-hours trading. For the quarter ending in June, AMD projected sales of $8.7 billion, with a margin of $300 million, surpassing analyst predictions of $8.3 billion. The company recorded a net income of $872 million, translating to 54 cents per share, a significant increase from the $265 million, or 16 cents per share, reported in the same period last year. In the competitive landscape of artificial intelligence, AMD ranks as the second-largest manufacturer of graphics processing units (GPUs), trailing behind Nvidia, which dominates the market. Major AI clients, including Meta and OpenAI, are increasingly considering AMD as a viable alternative to Nvidia’s expensive chips, particularly for inference tasks where AI models are utilized publicly. During this quarter, AMD unveiled its new AI chip line, the MI400, expected to be available in the coming year. Notably, OpenAI’s CEO, Sam Altman, expressed a commitment to utilizing AMD’s latest GPUs in their operations. However, the company is navigating challenges due to U.S. export controls on certain AI chips, which have raised concerns that advanced GPUs might be exploited by adversarial nations or for military applications. In April, the MI308 chip was restricted from being exported to China, impacting AMD’s finances by an estimated $800 million for the June quarter. Despite these hurdles, AMD announced in July that it anticipates resuming shipments following the approval of waivers by the previous administration. The company clarified that its revenue outlook does not account for any income from the MI308 chip, as its license applications are currently under review by the Department of Commerce. AMD's adjusted gross margin for the quarter was reported at 43%, but it would have reached 54% without the costs associated with export controls. Beyond GPUs, AMD competes with Intel in the central processor (CPU) market, which is also part of its data center segment. This segment achieved $3.2 billion in revenue, reflecting a 14% increase year-over-year. Additionally, AMD's Client and Gaming segment, encompassing CPUs for laptops and desktops as well as GPUs for gaming, experienced a remarkable 69% growth annually. This surge was largely fueled by strong demand for the latest AMD Ryzen Zen 5 desktop CPUs. The gaming revenue alone reached $1.1 billion, marking a 73% increase from the previous year due to heightened demand for custom chips used in gaming consoles and GPUs.