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Advanced Micro Devices (AMD) delivered a mixed Q2 earnings report, meeting analysts' EPS expectations -- a departure from its usual modest beats -- while surpassing revenue forecasts at $7.69 bln, up 32% yr/yr. The company also issued upbeat Q3 revenue guidance of approximately $8.7 bln, implying 28% yr/yr growth and 13% sequential growth. However, elevated investor expectations, fueled by AMD’s AI and data center momentum, were tempered by cautious commentary surrounding U.S. export restrictions on MI308 AI processors, contributing to a post-earnings stock selloff as the in-line EPS and regulatory uncertainty disappointed the market.

• The export restrictions significantly impacted Q2, with AMD incurring approximately $800 mln in inventory and related charges due to halted MI308 shipments to China, a market previously contributing substantial revenue. These charges drove GAAP gross margin down to 43%, a sharp decline, though adjusted non-GAAP gross margin, excluding the charges, was 54%, slightly up from 53% in the year-earlier period, reflecting underlying operational strength.
• The Data Center segment, a cornerstone of AMD’s growth strategy, generated $3.2 bln in revenue, aligning closely with analysts’ estimates and growing 14% yr/yr. Strong demand for AMD’s EPYC processors, which continue to gain traction in cloud and enterprise markets, was the primary driver, effectively offsetting headwinds from restricted MI308 shipments to China. This resilience underscores AMD’s competitive positioning against Intel (INTC) in server CPUs, though the segment’s AI growth remains constrained by regulatory challenges.
• The Client and Gaming segment was the standout, surging 69% yr/yr to $3.6 bln, driving the quarter’s revenue upside. Robust demand for “Zen 5” AMD Ryzen desktop processors fueled a record $2.5 bln in Client revenue, up 67%, while Gaming revenue rose 73% to $1.1 bln, propelled by increased semi-custom revenue and strong Radeon GPU demand. This segment’s performance highlights AMD’s ability to capitalize on PC and gaming market recovery, bolstered by new product launches like the Radeon RX 9060 XT.

The uncertainty surrounding MI308 export restrictions, costing AMD $800 mln in Q2 and excluding China-related revenue from Q3 guidance, is the primary driver of today’s stock selloff. Despite this, AMD delivered solid results, with strong Client and Gaming growth and a bullish Q3 outlook, positioning it well for continued momentum in AI and high-performance computing markets.