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Advanced Micro (AMD -9%) slides today as its Q3 revenue beat was insufficient to overcome another mild quarterly sales outlook. It was another boisterous quarter for AI, with AMD's core Data Center segment more than doubling revenue yr/yr for the second consecutive quarter. The outsized AI-related growth drove AMD to raise its FY24 AI Data Center sales forecast again by $0.5 bln to $5.0 bln.

However, the market was prepared for impressive AI-related growth, particularly after AMD's supplier, Taiwan Semi (TSM), delivered excellent AI-fueled Q3 numbers earlier this month. Meanwhile, outside of steady Client demand, which still decelerated sequentially, AMD endured further yr/yr sales declines across its Gaming and Embedded segments, underscoring stubborn macroeconomic headwinds. As a result, buyers are not springing into action today, keeping shares of AMD range-bound.

• AI remained the headliner in Q3, driving a 122% pop yr/yr in Data Center revenue to $3.5 bln. The back-to-back quarters of over +100% growth have led to the segment now comprising over half of AMD's total revs, up from just a quarter of total revenue two years ago. AMD's EPYC CPU platform, used to power general cloud services, like Office 365 (MSFT) and Netflix (NFLX), had a strong showing. However, the superstar was AMD's MI300X GPU platform, which powers the numerous AI-related instances.
  • During the call, management discussed the insatiable appetite for AI, referencing big tech firms like Microsoft and Meta Platforms (META) scooping up AMD's flagship MI300X accelerators.
• Looking ahead, AMD is excited about the competitive advantages of its upcoming platforms. For instance, the company noted that its MI325X, which is seeing high customer interest, delivers up to 20% higher inferencing performance than NVIDIA's (NVDA) H200 chip. Production shipments of the MI325X are scheduled to start in Q4, with widespread availability in 1Q25. Additionally, AMD's next-gen MI350-series is on track for a 2H25 launch, with its MI400 series progressing towards a 2026 launch.
• However, in the interim, AMD's other segments are not garnering as much excitement. Client segment revs, which centers on PCs, climbed 29% yr/yr to $1.9 bln, supported by healthy demand for Zen 5 Ryzen processors despite recent unfavorable customer reviews. Gaming revenue languished in Q3, falling by 69% yr/yr to $462 mln, largely due to a drop-off in semi-custom revs, underscoring poor gaming console demand. Embedded fell by 25% yr/yr as customers continued to adjust inventory levels.
• These weaknesses proved to be a drag on AMD's Q4 outlook, projecting revs of $7.2-7.8 bln, the midpoint of which was merely in-line with consensus. AMD has not issued upbeat quarterly guidance since 2022. Given the unwavering demand for AI, the market sought more buoyant guidance.

Bottom line, while AI remains hot, the tepid temperature of AMD's other segments continues to weigh on quarterly revenue guidance. However, Embedded is gradually recovering while Gaming is predicted to lead to sequential growth in Q4. With the demand for AI expected to remain robust, AMD is well-positioned to rekindle interest in its stock.