AMD data center results disappoint, shares slump

Advanced Micro Devices (AMD) reported Q2 data center revenue of $3.2 billion, up 14%, which disappointed investors and caused a 4% stock slump due to its slower AI chip growth compared to rival Nvidia and the impact of U.S. export restrictions on China sales. CEO Lisa Su noted a decline in AI chip revenue, but the company anticipates a steep ramp-up of its new MI350 series in H2, contributing to a stronger Q3 revenue outlook of $8.7 billion, although this excludes MI308 shipments to China pending license review.

Analysis

Advanced Micro Devices reported a notable disconnect between high investor expectations for AI-driven growth and its actual second-quarter performance, triggering a roughly 4% slump in its shares. The company's data center revenue grew 14% to $3.2 billion, a figure that, while in line with LSEG estimates, pales in comparison to the 73% segment growth reported by rival Nvidia. This disparity underscores AMD's current challenge in capturing a significant share of the AI spending splurge from hyperscalers like Microsoft and Meta. Management attributed the relative weakness to a year-over-year decline in AI chip revenue caused by U.S. export restrictions to China and a product cycle transition to the next-generation MI350 series. However, the company projects a significant rebound, guiding for third-quarter revenue of approximately $8.7 billion, which surpasses the consensus estimate of $8.30 billion. This optimistic forecast is predicated on a steep production ramp-up of the new MI350 chips in the second half of the year, though it critically excludes potential revenue from its MI308 chips to China, which are pending U.S. license review.

Key Decisions for Investors

• Investors should weigh the current data center performance gap with Nvidia against the strong Q3 guidance, which hinges critically on a successful and rapid execution of the MI350 AI chip production ramp.
• Closely monitor for any updates on the U.S. Commerce Department's review of licenses for MI308 chip exports to China, as approval could provide a material upside to current revenue forecasts.
• Given that AMD's valuation reflects significant AI growth expectations, continued scrutiny of data center revenue is warranted to validate whether the new product cycle can meaningfully close the market share gap with competitors.