Q2 2025 Advanced Micro Devices Inc Earnings Call

Greetings and welcome to the AMD second quarter 2025 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad.

as a reminder this conference is being recorded and it is now my pleasure to introduce to you, Matthew Ramsey VP of investor relations and financial strategy

Thank you sir. Please go ahead.

Thank you and welcome to amd's 2025 second quarter Financial results conference call. By. Now, you should have had the opportunity to review a copy of our earnings press release and the accompanying. Slides,

If you have not had the chance to review these materials, they can be found on the investor relations page of amd.com.

We will refer primarily to non-gaap financial measures during today's call the full non-gaap to gaap. Reconciliations are available in. Today's press release and slides posted on our website. Participants in today's conference, call are Dr. Lisa Sue, our chair and chief executive officer and Jean, who our Executive Vice President, Chief Financial Officer and Treasurer. This is a live call and we'll be replayed via webcast on our website.

Before we begin, I would like to note that Gene who Executive Vice President, Chief Financial Officer and Treasurer will present at cities 2025 Global TMT conference on Wednesday, September 3rd.

And Forest Nora, Executive Vice President and General Manager of the Data Center Solutions business unit, will present at the Goldman Sachs Communacopia and Technology Conference on Monday, September 8th.

Today's discussion contains 4 looking statements based on our current beliefs assumptions and expectations.

speaks only as of today and as such involves risks and uncertainties that could cause actual results to differ materially from our current expectations,

Please refer to the cautionary statement in our press release for more information on factors that could cause actual results to differ materially.

With that, I will hand the call over to Lisa.

Thank you, Matt and good afternoon to all those listening today.

We delivered, very strong second quarter results with Revenue exceeding. The midpoint of guidance as higher epic and Rising processor sales more than offset, headwinds from export controls, that impacted Instinct sales,

And embedded processors.

Second quarter Revenue increased, 32% year-over-year to a record 7.7 billion. And we delivered, over 1 billion in free, cash flow.

excluding the 800 million inventory, write down related to Data, Center AI, export controls, gross, margin was 54% marking, our sixth consecutive quarter of year-over-year, margin expansion, led by a richer product mix

Burning to the segments data center segment Revenue increased 14% year-over-year to 3.2 billion.

We saw robust demand across our epic portfolio, to power, cloud and Enterprise workloads and increasingly for emerging AI use cases.

In particular adoption of agentic, AI is creating additional demand for general purpose. Compute infrastructure as customers quickly realize that each token generated by a GPU triggers, multiple CPU, intensive, tasks.

Against this backdrop, fifth gen epic turn shipments, ramps significantly and we had sustained demand for our prior generation epic processors.

As a result, we set records for both cloud and Enterprise CPU sales and delivered, our 33rd consecutive quarter of year-over-year share games.

In Cloud, adoption expanded with the largest hyperscalers, as they deployed epic to power more of their mission, critical infrastructure services and public Cloud products.

More than 100 new AMD-powered cloud instances launched in the quarter, including multiple turn instances from Google and Oracle Cloud that deliver up to twice the performance of our previous generation, which were already the industry's highest performing offerings.

There are now nearly 1200 epic. Cloud instances available globally. As providers continue expanding, both the breadth and Regional availability of their AMD offerings.

This continued expansion is accelerating Enterprise adoption of Epic in the cloud with deployments growing significantly from the prior quarter. As we close large wings with dozens of large Aerospace, streaming Financial Services, retail and energy companies.

Epic adoption. Also grew with Telecom customers as providers. Modernize their infrastructure for Next Generation Networks.

For example, kddi announced plans to deploy epic processors to power its 5G virtualized Network.

And Nokia selected epic Forge Cloud platform used by service providers to build deploy and manage core Network functions.

Turning to Enterprise on-prem adoption hpe Dell Lenovo and super micro launched 28, new turn Platforms in the quarter. That deliver leadership, performance, efficiency, and TCO cross a wide range of enterprise workloads.

Epic Enterprise. Deployments grew significantly from the prior quarter supported by new wins with large technology, Automotive manufacturing financial services and public sector customers.

To extend our momentum with SMB and hosted it service customers, we launched the Epic 40005 series, that combine enterprise-grade performance and features in cost optimized platforms. Purpose-built for smaller scale, deployments

Turning to HPC AMD now Powers more than 1/3 of the world's fastest supercomputers including El Capitan and Frontier, which retained the number 1 and number 2 spots on the latest top 500 list.

We also powered 12 of the top 20 systems on the green 500 highlighting the performance per watt advantages of Epic and Instinct for large-scale. Deployments.

Looking ahead, we remain bullish on our service. CPU business is driven by durable tailwinds, including growing demand for cloud and on-prem compute, sustained share gains, and the growing investments in general-purpose infrastructure required to enable AI.

Turning to our data center, AI business Revenue declined year-over-year as us export restrictions effectively eliminated me 308 sales to China and we began transitioning to our next Generation me 350 series accelerators.

We made Solid progress with mi300 and mi3 255 in the quarter, closing new wins and expanding adoption with Tier 1 customers. Next Generation, AI Cloud providers, and end users.

Today, 7 of the top 10 model builders and AI companies use Instinct, underscoring the performance and TCO advantages of our data center AI solutions.

We launched our Instinct mi35p scalars, AI companies and oems.

355 matches or exceeds b200 in critical training and inference workloads and delivers comparable performance to gb200 for key workloads at significantly lower cost and complexity.

For appscale inferencing. Me 355 delivers up to 40% more tokens per dollar providing leadership performance and clear, TCO advantages.

With the MI5. 350 series, we're also expanding our system level capabilities to support deployments powered by AMD, CPUs gpus and nicks

as 1 example, Oracle is building a 27,000 plus node AI cluster combining mi3 555x accelerators, fifth gen epic, turn CPUs and polaro. 400 smart X,

We began volume production of the ME.350 series ahead of schedule in June and expect a steep production ramp in the second half of the year to support large-scale production. Deployments with multiple customers are expected.

Our Sovereign AI engagements accelerated in the quarter as governments around the world. Adopt, AMD technology to build secure AI infrastructure and advanced their economies.

As 1 example, we announced a multi-billion dollar collaboration what you mean to build AI infrastructure, powered entirely on AMD CPUs gpus and software.

Initial deployments are underway in key regions, with quarterly expansions planned over the coming years.

In addition, we have more than 40 active engagements globally and see significant opportunities to power an increasingly larger portion of national Computing centers and Sovereign AI initiatives.

On the AI software front, we made significant progress, this quarter, increasing the performance, improving the usability and expanding the adoption of Rackham.

We announced Rockham 7 with major upgrades across every layer of the stack delivering more than 3x, higher, inferencing, and training performance compared to our prior generation, and adding support for large-scale training, distributed, inference, and lower, Precision data types.

The deepened developer engagement we introduced nightly Rock and builds and expanded access to instant compute infrastructure including launching our first developer Cloud that provides pre-configured containers for instant access to AMD gpus.

We also expanded native support for raqqa across key Frameworks, including vlm and SG. Lang enabling Frontier models, like llama 4, Gemma 3 and deep seek R1 to launch with day Zero, AMD support.

To accelerate Enterprise adoption, we introduced Rackham Enterprise AI.

Stack platform that integrates seamlessly with existing it infrastructure and includes everything needed for an Enterprise to deploy manage and scale AI across their business.

Looking at the development of our next Generation me. 400 series is progressing rapidly.

These are the most advanced gpus we have ever built with up to 40 pdop of fp4, AI performance and 50% more memory memory bandwidth, and scale out throughput than the competition.

With the ME 400 series, we're bringing together everything we've learned across silicon, software, and systems to deliver Helios.

A full stack rack scale, AI platform.

Ilios is purpose-built for the most demanding AI workloads with each rack, connecting up to 72 gpus that can operate as a single massive AI accelerator.

Helios is expected to deliver up to a 10x generational performance increase for the most advanced Frontier models. And we believe it will be the highest performance AI system in the world when it launches

Me. 400 series development is progressing. Well, towards our plan launched in 2026 with significant interest in large-scale. Deployments from multiple high-profile customers.

To accelerate our development, we have invested significantly to expand our AI software and Hardware capabilities. Both organically and inorganically with a number of Acquisitions and strategic Investments.

We strengthened our software stack last quarter with the addition of the Brim and LEMOni teams, building on our acquisitions of Nod.ai, Nippy, and Silo AI.

On the hardware side we added a world-class rack and data center scale design team in the second quarter with our acquisition of ZT systems.

The ZT team is integrated seamlessly, and they are actively engaging with multiple customers to accelerate deployments of our Helio Solutions at scale.

Factory.

Turning to the AI regulatory environment. Earlier this quarter, we were notified by the Department of Commerce that it is moving forward with the review of our license applications to export mi30 to China.

We appreciate the focus, the Trump Administration is placing on ensuring that the US technology remains Central to Global AI infrastructure and we expect to resume me 308, shipments, as licenses, are approved subject to End customer demand and supply chain readiness.

As our licenses are still under review, we are not including any MI300 revenue in our third quarter guidance.

Despite that we expect Instinct Revenue to grow year-over-year in the third quarter driven by the ramp of me 350 at multiple customers.

In clients and gaming segment Revenue, increased 69%. Year-over-year for 3.6 billion driven by record client, CPU sales, and strong demand. For our semi-custom game console, soc's and Radeon gpus.

Bryant Revenue increased 67% year-over-year to $2.5 billion, led by record desktop CPU sales.

Demand for our latest generation. Ryzen 9000 series was strong, especially for our differentiated x3d processors.

We delivered record desktop Channel, CPU sales as ryzen. Processors, consistently top, the bestselling CPU lists at Major Global e, tailor, throughout the quarter.

We also expanded our Zen 5, desktop portfolio with the launch of our latest thread. Ripper processors that feature up to 96, Coors, and deliver up to double the performance of the competition. In many popular content, creation and Design workloads.

In Mobile demand for AMD, powered notebooks with strong, would sell out growing by a large double-digit percentage year-over-year.

We drove a richer mix of higher. ASP mobile Parts year-over-year as we expanded our share in the premium notebook, segment, where our ryzen ai3 CPUs deliver leadership, performance and value for both general purpose and AI workloads.

In commercial. PCS rise in adoption accelerated. As OEM consumption increased more than 25% year-over-year.

We saw a strong sell through for AMD, commercial notebooks with Lenovo and HP, and a significant uptick in Dell sales as they ramp availability of their AMD commercial portfolio.

We also closed new Enterprise wins with Forbes 2000, Pharma Tech Automotive Financial Services, Aerospace and healthcare companies.

We expect.

To continue growing. Our commercial client share based on the strength of our product portfolio and expanded breadth of OEM offerings.

Looking more broadly. We remain confident. We can continue growing client. Processor Revenue ahead of the market, over the coming, quarters driven by increased adoption of our desktop, and notebook products, growing commercial momentum and a richer product mix

In Gaming revenue, increase 73% year-over-year to 1.1 billion.

Semi-custom Revenue increased by a large, double digit percentage year-over-year as console inventories, normalized, and our customers began preparing for the holiday season.

We announced a new multi-year collaboration with Microsoft for custom chips. That will power the next generation of Xbox devices, including consoles, PCS and handhelds.

We also deepened our collaboration with Sony through Project Amethyst, a co-engineered program that will use machine learning to power the next wave of immersive gaming experiences.

In PC gaming demand for our latest generation Radeon 9000 Series gpus, what's very strong with desktop gpus sell through accelerating in the quarter as demand outpace Supply.

We launched the Radeon 9600 XT, extending the performance advantages of rdna 4 to mainstream Gamers and delivering. A significant uplift in gaming performance including more than double the rate tracing of our prior generation.

As part of our end-to-end AI strategy, we introduced the Radeon AI Pro R 9700 GPU for local inferencing, model, fine-tuning and other data data-intensive workloads.

The r 97700 features more memory, full, Rockham support and multi-gpu scalability. Enabling Advanced AI development and deployment directly on the desktop.

Turning to our embedded, segment Revenue, decreased 4% year-over-year to 824 million.

Customers.

We expanded our embedded portfolio with the first production shipments of Spartan Ultra scale, plus fpgas. That deliver leadership performance and advanced security for cost-sensitive low power applications.

Adoption of our virtual adaptive soc's continues expanding in high-end applications. Including Next Generation, robot taxi platforms, developed by Bosch in Europe. Where vercel serves as a high-performance controller enabling real-time processing security, and encryption in fully, electric automated vehicles.

Looking ahead. We expect improving demand in the test and measurement Communications and Aerospace markets will drive a return to sequential growth in the second half of 2025.

Longer-term design momentum continues to build, tracking ahead of this point last year and putting us on pace to surpass the record $14 billion in design wins we achieved in 2024.

In summary demand is very strong across our product portfolio. And we are well positioned to deliver significant growth in the second half of the Year led by the Steep ramp of mi3 50, Series accelerators and ongoing epic and rise in share gains.

Our server and PC CPU businesses are accelerating, driven by growing demand for high performance, sustained compute share gains, the strength of our product portfolio, and expanded go-to-market investments.

Our embedded in gaming, businesses are returning to growth and are well positioned for long-term success, supported by strong design weed. Momentum,

And in AI we are seeing strong adoption of our me. 350 series and Rockham 7 as we deliver leadership performance and TCO advantages of a broader range of workloads and ramp deployments with an expanded set of cloud and Enterprise customers.

Looking ahead, we see a clear path to scaling our AI business to tens of billions of dollars in annual revenue.

We are very excited about our next Generation me. 400 series, which is another giant step forward on our roadmap, and has been designed to deliver leadership performance. At the chip server and rack levels.

Customer interests for the me, 400 series is very strong, and we are actively engaging with an expanding set of customers to support large-scale deployments in 2026.

We are in the early stages of an industry-wide AI transformation that will drive a step function increase in compute demand across all of our markets positioning us for significant revenue and earnings growth over the coming years.

Now, I'd like to turn the call over to Jeanne to provide some additional color on our second quarter results Jean.

Thank you, Lisa and good afternoon everyone. I'll start with the review of our financial results and then provide our outlook for the third quarter of fiscal 2025

We're pleased to read our strong second quarter Financial results. We delivered a record revenue of 7.7 billion exceeding. The middle point of our guidance up 32%, a year of year, reflecting strong momentum across our business.

Record sales of Verizon and epic processors and the higher semi customer shipment more than offset. The impact of the ux export controls restricting me 308 sales to China.

Revenue increases 3%, sequentially due to strong growth in the client and the gaming segment, partially offset by the data center Revenue, decrease due to Expo the controls.

Growth margin was 43% down 10 points from 53%. A year ago, the decrease was due to the 800 million inventory and related to the charges associated with the Xbox restrictions.

Excluding this charge, Nang Deb's gross margin would have been approximately 54%.

Expenses were approximately $2.4 billion, representing an increase of 32% year over year, as we continue to invest aggressively in go-to-market activities for revenue growth and in R&D to capitalize on significant future AI expansion opportunities.

Operating income was 897 million representing a 12% operating margin compared to 1.3 billion or 22% a year ago.

The decline was primarily due to the inventory and related charges.

Taxes interest expense and other totaled 126 million.

For the second quarter of 2025 diluted earning per share or 48 cents compared to 69 cents a year ago.

Now, turning to our reportable segments, starting with the data center.

Data center segmented Revenue was 3.2 billion up 14% year of year, driven by strong ethic CPU revenue and the share gains across both cloud and Enterprise customers.

Our sequential basis data center Revenue decreased 12%. Due to the impact of the Xbox controllers on mi3.

The data center segment operating loss was $155 million, compared to operating income of $743 million a year ago, representing 26% of revenue.

The loss was primarily due to the inventory and related the charges.

Client and the gaming segment Revenue was 3.6 billion up 69% a year of year and 20% of sequentially driven by record, client, CPU sales, and a strong demand for our PC and the console gaming products.

In the client business Revenue was a record of 2.5 billion up. 67% a year of year divided by record sales of our Rising desktop CPUs and the Richer product mix.

Any Revenue Rose to 1.1 billion up 73% year of year, reflect in strong, demand for our newly launched the gaming gpus and higher semic customer Revenue, as the inventory has now normalized, and customers prepare for the holiday season.

Client and gaming segment. Operating income was 767 million or 21% of Revenue, compared to 166 million or 8%. A year ago, driven by richer client product mix and operating leverage on higher Revenue.

In better segment, revenue was $824 million, down 4% year-over-year, and the flight sequentially has embedded and market demand remains mixed.

In by segment, operating income was 275 million or 33% of Revenue compared to 345 million or 40% a year ago?

The decline in operating income was primarily due to product mix.

Before I reviewed the balance sheet and the cash flow as a dream under, we closed the acquisition of a ZT systems early in the second quarter. As we had announced our intended to divert the ZT manufacturing business. The financial results of the ZT manufacturing, business are reported separately in our financial statement as this continued operation.

And I excluded from our non-app financials.

Subsequently, in May, we entered into an agreement with Samina Corporation to sell the ZT manufacturing business for $3 billion in cash and stock, inclusive of contingent payment.

The transaction is expected to close near the end of 2025 subject to regulatory approvals and the customary closing conditions.

Turning to the balance sheet and cash flow during the quarter. We generated 1.5 billion in cash from operating activities of continuing operations,

And the free cash flow was a record of 1.2 billion.

We returned the 478 million to shareholders through. Share repurchase resulting in 1.2 billion, in share, repurchases. For the first half of 2025.

In May our false directors approved. Additional 6 billion dollar authorization accessing the quarter. We have a 9.5 billion remaining and our share repurchase program.

At the end of the quarter Cash, Cash, equivalents and short-term investment will 5.9 billion.

Our long-term debt was 3.2 billion during the quarter. We paid down 950 million of commercial paper used to finance the ZT system, acquisition closed.

Now, turning to our third quarter, 2025 Outlook, please note that our third quarter Outlook does not include any revenue from AMD Instinct me 308, ship them to China.

As our license application are currently under review by US government.

For the third quarter of 2025, we expect Revenue to be approximately 8.7 billion. Plus our minus 300 million

The middle point of our guidance represent approximately 28% year-over-year, Revenue growth driven by strong double digit growth in our client and gaming and the data center segments.

We expect Revenue to grow by approximately 13%.

Driven by strong double digit growth in the data center segment, with the ramp of our AMD Instinct II 3050 series GPU products.

Modest growth in our client giving segment with a client on the revenue increasing and The Gaming revenue to be flattish.

And our investment Revenue to return to growth.

In addition we expect third quarter, non Gap growth margin to be approximately 54%.

And we expect non Gap, operating expenses to be approximately 2.55 billion.

We expect net interest and other expenses to be again of approximately 10 million.

We expect our non-GAAP effective tax rate to be 13%, and diluted. The share count is expected to be approximately 1.63 billion shares.

In closing, we execute a very well in the first half of the Year, delivering record revenue and build in strong, momentum for growth in the second half.

The Strategic investment we're making position as to capitalize on the expanding AI opportunities cross. All our end markets

Driving sustainable, long-term revenue, growth, and earnings expansion for compelling value creation.

With that. I'll turn it back to Matt for the Q&A session.

Operator, will you please uh pull the audience for questions? Thank you.

Yes. Thank you, Matt. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment, please, while we pull for questions.

And the first question comes from the line of Thomas Ali with Barclays. Please proceed with your question.

Hey, thank you for taking my questions and I appreciate it Lisa. I want to start on the client business. So you had previously laid out a second half Outlook that was roughly flat as with the first half as you were kind of protecting against some pull forward. So first, do you think that your Q2 results included, some pull forwards and the second half, should still be flattish and longer term after the Intel commentary regarding 18a. Uh, maybe what that means is a knee-jerk reaction, just right away for AMD longer term in terms of sharing ASDS,

Sure Tom, uh, thanks for the question. So, first of all, um, you know, our client and gaming segment and particularly our client business, just performed very well in the first half of the year. I think, if you look at the, you know, entire first half, it was up 68% year-over-year. Um, I think if you look underneath that, what we're seeing is strength in every part of our client business. So we saw, you know, very strong sales in our desktop Channel, um, area. Uh, you know, we have a leadership product there, you know, best gaming gpus with our x3d, uh, gpus. Uh, we've had um, strong rise in AI adoption. Um, as well, in the first half of the year we see that and sell through. And in addition, um, you know, we've had strong Enterprise uh, sell through as we brought that forward. So to your question of, you know, how much is uh, you know, pulled forward. Uh, we don't think, um, a whole lot of that is, uh, we actually, you know, when we look at the sell through patterns, the end user, uh, consumption is actually, you know, quite strong, uh, for client, um, in terms of, you know, going into uh, the second half of the year.

As we said, in our, in our Q3 guide, you know, the primary driver of our Q3 guide is a very strong data center, uh, driven by, you know me 350, ramping, uh, we are, uh, expecting, uh, some growth in the client business. So I wouldn't say, it'll be flat to the first half, but it will be, uh, you know, we're planning for it to be a little bit less than seasonal, uh, just given you know, some of the uncertainties, um, out there. But the client business is performing, um, extremely well for us. Uh, you know, we believe we are gaining share in all the right places. Uh, so

Super helpful. And then secondly, I was hopeful you could provide us a little more color on China. So the guy doesn’t include MI300, but perhaps you could comment on when you get approval, if the supply chain is ready, what’s currently in inventory, and maybe compare what you think the contribution will look like versus the $700 million in Q2 and the $800 million for the second half that you spoke about in April.

Sure, Tom. So, um, yeah, let let me answer some of the questions on China. I'm sure that uh, you know, there there are some questions. Um, look, we're we're very pleased with the progress that's been made with, um, the administration over the last couple of months, uh, you know, we've been working very closely with the administration. Um, I think the focus here on ensuring that, you know, us, technology gets, uh, you know, utilized throughout the world. Is something that, you know, we certainly, you know, support and and very much, um, you know, want to contribute to, uh, you know, China is an important market for us. Uh, you know, given the timing of licenses, we have a number of licenses that are under review now, uh, we are, um, you know, we are working with uh, the Department of Commerce to get uh, those reviewed. Uh, you know, we do expect uh that once those licenses are approved, you know, we will start um, you know, me 308 shipments um in terms of the supply chain you know most of our inventory was not in finished goods. So it was work in process and, you know, it'll take us a couple quarters uh to run through that you know, the exact timing of

Revenue and contribution will depend, um, a bit on when those are, uh, when the licenses are actually granted. But overall, you know, I think this is a better position than we were 90 days ago. And, you know, we certainly, you know, view China as a market that we would like to Service, uh, with, um, me 308. Um, and, uh, you know, we're working closely with the administration, uh, to, um, you know, to do that.

And the next question comes from the line of vivec Arya with Bank of America Securities. Please proceed with your question.

Uh thank you for that question. Um, Lisa. If we look into 2026. Um right. That's when I think uh the The Sovereign opportunity could get uh quite meaningful for uh AMD. What is the right way to to size that? Um, you know, what does this JV structure mean with, with some of the contracts that uh, you have signed? And would you consider this incremental to the kind of growth rate that you're seeing with your current me business or would this be? Uh, instead of. So just if you could give us a way to size. What is that incremental opportunity from a sovereign customers? When it comes to 26, um, like, is, is it depend on a am I 400, right? In which case, it might be more backup data, Etc. So just some some ways to think about the Sovereign for, uh, AMD next year.

Yeah, absolutely vbec. Thanks for the question. So look where, uh, we're really, um, excited about the overall, you know, AI opportunity for us with me. 355, and, you know, the me 400 series as we go through the back half of this year and into 2026, um, I I think it's, uh, you know, there's a very large opportunity with let's call it hyperscalers. Um, you know, some of the leading AI companies as well as Sovereign. I think Sovereign is additive, uh, to that, uh, for sure. Um, you know, from the standpoint of, you know, what to expect, you know, you know, there are also, uh, some, uh, regulatory things that need to be worked through on the Sovereign side. But again, we were working closely with the administration as they, um, you know, go through the, uh, the various, uh, regulatory decisions that need to be made. But from my perspective, you know, I think the, the fact that countries want their own, you know, Sovereign, Computing. Capability is very, very clear. Um, I think we see that all over the world, uh, you know, the, uh, Humane, um, opportunity that you're referring.

Referring to that we announced with the Kingdom of Saudi Arabia. I think is a great example of where, um, you know, together with their Ambitions, our technology. Um, I think you heard, uh, from uh, TK. That was, uh, he was at our event saying that that would start with me, 355 that we would expect.

That that would uh continue on. I think, what's attractive about our offering is our open ecosystem, and I think that really resonates uh, with the, uh, The Sovereign Community. But, um, to your original question, I, I think it's an, it's an additive opportunity and it's 1 that, you know, we believe will continue to be, um, you know, very important, uh, for us going forward with both me 355, as well as the me 400 series.

Gross margins as you go into Q4.

Thank you. Yeah, VC, thank you for the question. Uh, the gross margin of our me product. We said it's a little bit below, corporate average. I think, at this point, our priority is really to address the larger fast growing Revenue opportunities we have and provide customers better TCO, uh, to really expand our presence in the marketplace. I think, the way to think about our gross margin there are different Dynamics, right. Different customers different Generations but also our operation team has been continuing to really Drive operational efficiency to improve, uh, our me families across margin that has been ongoing. So it's not necessarily really tied to, okay, the revenue level each quarter, but uh, you should think about is a trend in the longer term. It should improve or continually, uh, going forward overall, uh, the way.

I think about these gross margin dollars, right? Is this, is 1 of the fastest growing Market opportunities uh for any Financial metrics, gross margin dollars is what we try to grab as much as we can. Uh, hopefully that helped your question.

And the next question comes from the line of Timothy Rory with UBS. Please proceed with your question.

Thanks a lot. Um Lisa. So my question is on um, data center GPU, you did say that June is up year-over-year so it sounds like it's maybe a little more than a, you know, billion dollars. Um, and you use words like strong ramp into the back half of the year. Can you get us? Just any color on what that means? Um, can you get to say 7 billion dollars for the year and and can you give us some maybe, you know, mile post on what you're assuming for, you know, Q3 uh, would be great.

Uh, Tim for the question. I, I think what we said in the prepared remarks is that we are seeing a strong ramp from Q2 into Q3. Um, my 3555 we actually started uh, production in June, so we had, um, some shipments, um, you know, and sort of in the month of June. But uh, it it really is ramping as we go through this quarter and the third quarter. Uh, so, you know, in terms of guideposts, uh, we said it would, uh, grow year on year, uh, from uh, from last year. And that, you know, that I think is a, is a, a strong ramp. And then, you know, we would expect it to, you know, grow into the fourth quarter as well. Um, the demand, you know, I should say what we're seeing from customers is, uh, I think, you know, really positive around me, 355. Uh, you know, sort of the way I would contrast it with maybe the mi300 ramp. I think mi300 started with perhaps some smaller deployments. I think what we're seeing with

00, gb200 family of products. Um, I think there's a strong desire to uh, you know, to really use us at scale. Um, you know, me 355 is, you know, very strong for inferencing. We're also working

Uh, with a number of customers, um, on training. And, um, you know, this is also an a, an opportunity for us to build into the me 400 series as we go into 2026, so, we're bullish on me. 355, and you know where the, uh, the AI, um, opportunity is for us. And I think we're right on track to what we expected, uh, to be as we were uh, going through the development of of the road map.

Thanks a lot and then Lisa just on that point. Also uh, you did talk about a new developer Cloud. Um, so obviously, you'll be getting your, you know, beginning to lease back some of the, you know, capacity that you're selling into the clouds and the Neo clouds is that going to be a material portion of the revenue. You're going to recognize for me, 355 in the back half of the year. Um, can you just talk about that and maybe, you know, how to think about how much demand that that's that's going to stimulate it. And you know what the ultimate goal is for that cloud. Thanks.

Yeah, so there are a couple of things, um, in that question. So let me answer. The developer cloud is, um, simply we want to make it super easy for developers to get on, um, you know, AMD, uh, you know, Instinct, uh, GPUs. You know, one could say, you know, again, if we look back at the MI300 family, uh, we were very focused on the largest hyperscalers and the largest customers, uh, but there's a lot.

Um, as they ramp to larger deployments. And, um, you know, we're very actively, uh, you know, trying to get those deployments up and running as soon as possible. Um, one of the things, just as a reminder, that the MI355 is, you know, given that it's a similar infrastructure to MI300, we actually think it's going to ramp very quickly and very, um, very well for customers. And I think that's one of the attractive portions of it as well.

And the next question comes from the line of Ross Seymour with Deutsche Bank. Please proceed with your question.

Hi. Thanks for letting me ask a question. Uh, Lisa I want to go back to the Instinct side of things and the me 355 ramp looks like the second half is going to ramp really significantly. You said it's going to be up year-over-year in the third quarter. I believe, a quarter ago, you said roughly the same thing in in the knee 308 is out of both numbers so that shouldn't really matter and I guess it would be upside but I just wondered how have things changed from a quarter ago as far as the me. 350 family adoption especially because you are you launched a little bit? Early is the growth a little bit more than you would expected a quarter ago about the same or a little worse, just any sort of color on that will be helpful.

Yeah Ross. Um thanks for the question. I think the the main thing I would say is I think the um the adoption is um a bit faster than we might have expected. Um again whenever you launch a product you know we want to make sure that we go through the the full uh, validation and and all of that with our customers. I think there's a lot of interest uh, broad-based interest.

Me 355. And so you know, I feel like um um, over the last 90 days, um, I think we've had um significant sort of new customer interest and um, you know, that's, that's certainly positive.

I I will say, oh, I'm sorry, I was just going to add, you know, the, you know, our engagements are. Uh, I I think the other piece is, I think there's also a lot of excitement around me 400. And you know what? We can do with the Helios rack. And so there are a number of customers who, you know, based on sort of the strong road map that we're showing, um, you know, want to get, uh, you know, familiar and, you know, really work with us. Um, you know, earlier in the uh,

In the, um, life cycle which, you know, I think is again positive.

Great, thank you for that. I guess this is my follow-up. Uh,

An earlier question, you talked about a little bit below seasonality in the second half of the year for your client business. It seems like there's just I don't even know if seasonality is a framework that matters. But how are you thinking about that uh for the second half as a whole for client and then gaming which was just up a huge amount sequentially in the second quarter, you described a little bit of what you're expecting there, but how do you think about seasonality for the second half in its entirety in the gaming side, as well?

Yeah, let me um let me try and then, you know, Gene might add if uh if you want a little bit more color. So the, the way to think about it is, um, you know, we do expect, uh, the some growth sequential growth in clients. Um, as we go into the third quarter, um, I would say, you know, sort of, you know, single digit, you know, type growth, um, you know, we we continue to see uh, good traction for our products and that portfolio. Um, on the gaming side, um, I would call it flattish, uh, to Q2. Um, and you know, we're coming off of such a strong Q2 that I think flat-ish is actually a, uh, you know, to be expected. Um, as we go into the fourth quarter, the Dynamics that we would see is, you know, we would see that the, uh, console business would actually be, um, down substantially. So think about it as down, strong double digits. Um, are you know, the customers usually build for the holiday season, uh, in, you know, sort of before that and then, um, that will be completed by the fourth quarter.

so, we would expect

As the client in gaming segment, that the segment would probably be down, um, in the fourth quarter. So, uh, hopefully that helps Gene did. I did you want to add to that? Uh, no. I think you covered it, okay?

And the next question comes from the line of Joshua, at TD Cowen. Please proceed with your question.

Hey guys, thank you for taking my question. Um, I wanted to ask about lead times on your on the Instinct family, both for the me, 350 group, uh, family and me 400. I mean, as you move into larger cluster sizes, which it sounds like you're doing at least with Oracle on 350 and then Endeavour to do more, so on 400. Um, how much visibility and lead time do you need from your customers? Because, you know, I would imagine the lead time for your parts is measured in months. But on the infrastructure, side, in particular for the larger scale, deployments. I mean those things are measured in years at this point. So maybe you could speak to the visibility specifically on on the the 400 thank you.

Yeah, somewhere between, you know, 8, 8 9 months, that type of thing. Uh, you know, we have a, a very, very strong supply chain. You know, we've been preparing for these ramps of, you know, both me 350 series and me 400 series. And you know that preparation is is ongoing. So we, you know, we feel like we have uh, a very strong supply chain there in terms of visibility with customers. We're absolutely working with customers, uh, very closely on, uh, near-term. Um, me. 350 series. Deployments, you know, getting those deployments up as, as, as quickly as possible. Again, 1 of the things about the me. 350 series that is good, is that it can go into existing data centers. Um, you know, given the uh,

You know, just just given the platform that is that is in. So, you know, we have been, uh, certainly working with, um, our customers there and then for the me 400 series, um, there are lots and lots of details in, you know, sort of full rack scale, design implementation, and we're actively working with the largest customers, uh, you know, right now on, you know, just ensuring that our Helios rack is fully compatible with their data center build out as we go into 2026. So, um, that visibility is uh, important. I think that code development co- engineering is important. Um, as we get into the rack scale architecture and um and you know the ziti

Team that we brought in, uh, has uh, been extremely extremely helpful, uh, in terms of, you know, both you know, internal platform, uh, you know, build out as well as ensuring that we're working closely with our customers on their data center needs.

Thank you for that, Lisa, and maybe for Gan. I wanted to follow up on the next question earlier on gross margins. So if we add back the charges in Q2, and then, you know, your gross margin implied in the guidance is roughly flat sequentially. Um, and that's despite what's implied to be, you know, data center GPUs up meaningfully sequentially. Like, it doesn't seem like consoles are falling off in the third quarter. Can you maybe talk to the underlying drivers of how you're able to keep the flat gross margins despite, uh, you know, what sounds like still margin-dilutive data center GPUs up significantly within the mix? Thank you.

Yeah, uh, Josh. Thanks for the question. Yeah, we are guiding our Q3 gross margin around 54% and Q to your, right excluding the 800 million charge. It was close to 54%. Uh, uh, I think the the gaming business actually is quite high. So the makes actually is unfavorable but uh, uh, we do have some uh, uh, Tailwind. We have been really driving. Uh, first is, you know, we have been expanding, uh, our server business, which has a really nice gross margin and that on the client business side. Uh, we are expanding the commercial

PC business, so that really helps us to drive the gross margin up. In addition, we do have a really strong operational team. They are driving the gross margin improvement just from an operational efficiency perspective across the board. Overall, our objective is to continue to improve gross margin. Despite, you know, me 350, a very strong ramp in Q3, we are able to continue to drive the margin up.

And the next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Great. Thank you. Um, you've used this language before the kind of tens of billions opportunity around me 400. Can you talk about you know, that the time frame, when that might occur? And, you know, not depending on too much but and and what, you know, what would help you get to that level sooner rather than later? Should we think of that as a 2027 realistic outcome that you could be looking at 20 billion plus? Uh, just, you know, a little bit more color on that tens of billions coming.

Yeah, I mean maybe without being specific Joe. Uh I I can give you sort of the the way, you know, I look at it and, you know, back

Set of aspirations.

Right, that's helpful. Thank you. And then as these workloads evolve, I mean, you sort of talked about inference and training as sort of different opportunities for AMD. Are you seeing those start to come together? It seems like with inference. There's a, the reasoning models are are requiring much higher complexity is rack scale, more important to the inference Market than you thought. It might be just, you know, any color around, how that complexity of inference is impacting you guys.

Yeah, I I think that's um, absolutely true Joe. I think with the uh, the proliferation of models, I think what we're seeing is, you know, gpus continue to be uh, you know, very you know sort of the the Computing of choice as you think about all the models that are out there and then as you go into distributed inference and some of the um the newer uh you know, techniques um you know we are seeing the importance of the uh the scale up and the scale out architecture, which we are, you know, investing in. But I think the overarching thing is I think we have a very competitive roadmap, um, across, you know, the next couple of generations. I think that is now gotten strong customer, validation. We're getting a lot of feedback from customers on where they would, um, you know, like to see us, um, you know, continue to add more resources and add more focus. And so, you know, that is uh, is very helpful and, you know, the the key is to be a um, you know, a full-scale uh, solution provider uh, for uh, you know, for these large, you know, customer deployments and and that's you know, that's what

We're working on.

And the next question comes from the line of Aaron Rakers with Wells Fargo. Please proceed with your question.

Yeah. Thanks, uh, for taking the question, I do have a follow-up as well. Um, I guess the first question is, you know, when we look at the data center guide, you know, Gene you alluded to double digit, sequential growth. Obviously, the me, you know, 355 series kind of ramping. I'm, I'm curious. How could we conceptualize what you're expecting in the server side? And where do you think your market share is today in in traditional Enterprise servers outside of cloud?

Yeah, I think I want you. Look at our data center business. We do have a strong double digit growth, both the server. And the uh, am I both side are growing sequentially? Of course, I might ramp is the most significant 1, uh, as far as the server market share, we do think, uh, we continue to drive the market this year up compared to q1. Uh, it's not a third party has not published report yet, but uh, uh, we feel really good about the Q2 market share increase versus q1.

Aaron, if I just add to that, you know, 1, 1 of the things that, um, I, you know, it's important for people to understand is, you know, in some of the cloud capex numbers that have come out that have been, you know, quite positive, uh, you know that that is not, you know, only a GPU statement but there's actually, you know, significant CPU capex in there as well. You know, we've started to see uh, you know, more uh, you know, robust forecasts going out, a number of quarters on the server CPU side because all of that. AI content, uh, you know, really requires, you know, traditional um, you know, CPUs, um, as well. And so we're very bullish on the opportunity in servers. I think the team has, uh,

Uh has really executed extremely well. I mean if you look at our portfolio now turn in general. Um our um you know very well adopted broadening workloads. Um Enterprise adoption is also

Um, increasing and so, I think all of those are are positive, um, for the, uh, the server opportunity in the second half of 25, as well as going into 26 and Beyond.

Yeah. And then as a as a follow-up, I'm kind of thinking about the China. The me 308 opportunity when we do see a license, I think you alluded to this earlier. It's going to take a little bit of time to kind of ramp and get the supply chain to to satisfy the demand, but I'm curious the 800 million, you know, write down that you had taken, is there. No kind of finished inventory there. Does that come back? Do you have any reversals aspects of that? Once a licensed

Gets approved.

Uh, let me start first. You, then Lisa can add. The first on the 800 million, majority of them are weeps. We really don't have a finished good on the shelf we can ship immediately, so we do need to take time if we get a license.

And the next question comes from the line of CJ, Muse, with Cantor Fitzgerald, please proceed with your question.

Perspective. Um, how you might see, um, that evolved, you know, from traditional hyperscalers to perhaps more sovereign and new cloud within the mix.

Sure, CJ. So, um, certainly, as, uh, second half this year, it's all about me, 355, ramp into first half of next year. I think the, uh, the me 400 series development is right on track. Um, you know, the, the development of the Helios platform is also right on track. Uh, you know, we would expect significant Revenue contribution, uh, from Helios in, uh, 2026, uh, and then relative to the contribution of the various things hyperscalers, you know, sort of some of the, uh, you know, versus Neo clouds versus Sovereign. I think it's a little early to, to really talk about the, the different pieces. Other than to say, you know, you would expect that, you know, hyperscalers and let's call it, you know, Neo clouds. That would be working for, uh, other large AI, natives maybe. Um, maybe significant pieces of the initial ramp and then, you know, Sovereign may come a little bit later in time, uh, just given, you know, sort of the timing of when a different build outs uh, would happen. So, hopefully that gives you some color CJ.

Yeah, very helpful. And then, Jean, I guess the question for you, with the sale of Ziti for $3 billion in cash and stock, and you only have $3 billion in debt outstanding, you know, how are you thinking about the use of proceeds? Is there, you know, saving for a rainy day or both on acquisitions, perhaps more aggressive share buyback? How are you thinking about it today?

Yeah, thanks for the question. Uh, our business model actually generate a lot of free cash flow as you see in Q2 uh, free cash flow generation was 1.2 billion. So if we close the ZT sale and we'll get more cash, uh, overall our Capital, uh, allocation principal continue to be the first things investing, uh, especially with the tremendous AI opportunities ahead of us. And then we will continue to return cash to shareholders. So, we did a 1.2 billion, uh, repurchase in the first half of the year, uh, we are committed to continue to return cash to shareholders through share repurchase.

Operator: I think we have time for one more caller, please.

The final question comes from the line of Ben Reitzes with Milius Research. Please proceed with your question.

Hey, thanks for squeaking me in here. Uh, I wanted to clarify a little bit on the 1 billion increase in sequential sales. I would seem like it's coming from gpus primarily. I was wondering if you could back that and that's with nothing in China. And if if the answer to, uh, the prior question that gpus are over a billion, you know, that that kind of puts you at a 2 2 billion, run rate, um, and uh, was just wondering if that was, you know, accurate, in, in terms of thinking, and then I have just a very quick follow-up. Thanks.

Hi, Ben. Thanks for the question. Uh, if you look at the sequential Revenue increase, as I mentioned during the prepared remarks, uh, we see data center, uh, strong double digit increase which include both the GPU and the CPU. But the GPU will definitely drives. Uh, largest increase in incremental amount, increase. We also mentioned the uh, the client actually is going to increase the sequentially. Uh, in addition, uh, the embedded business will return to sequential, uh, growth. So multiple business contribute to sequential increase but the majority of increased is really driven by me 3555. This is a strong ramp

Okay, great. And then if um, you know, if indeed, you know, that gets you pretty close to uh, a couple, uh, billion dollars if if the mi300 comes in. Do you see it at the same run rate, you know, that you that you exited and and then you have the ability to, um, you know, uh, get at that 800 mil run rate. Uh, right away, or you think it'll take several quarters to ramp when when, you know, you get the license, thanks.

Yeah. Ben it will, it will take some time to ramp, uh, just given and you know, particularly, you know, today. I mean we're sitting already, you know, in early August so I don't, I don't think you would see a lot of it in Q3. Uh, but but certainly, you know, as licenses would be approved. We would uh, uh, you know, we would schedule that and and it would take a little but a little while to ramp.

And ladies and gentlemen, all right. Operator, thank you very much. We appreciate everybody that joined the call today, and we would like to end the call now. Thank you.

Teammate, disconnect your lines at this time.