Story Stocks^®

Advanced Micro Devices (AMD) has been volatile following its strong Q3 report last night, with shares now trading modestly higher. The company exceeded expectations, with adjusted EPS jumping 74% yr/yr to $2.09 and revenue increasing 44.7% to a record $13.38 bln. AMD also guided Q4 revenue above expectations at $16.49-17.51 bln, implying 66% yr/yr growth at the midpoint, supported by the continued ramp of its next-generation data center products. Encouragingly, improving visibility into customer demand is supporting management's outlook for revenue growth exceeding 80% in 2027, driven primarily by its Data Center business.

• Data Center revenue accelerated again, increasing 97% yr/yr and 27% sequentially to a record $8.5 bln, now accounting for 64% of total revenue. Both cloud and enterprise server sales more than doubled yr/yr, exceeding management's prior outlook for growth above 80% as AMD continued gaining share. Meanwhile, data center AI revenue reached a record as the company began volume shipments of its MI455X GPUs, with customers including Anthropic, Meta, Microsoft, OpenAI, and Oracle bringing their first Helios racks online.
• More broadly, demand for server compute continues to strengthen across cloud, enterprise, and emerging agentic AI workloads. AMD noted that these workloads are creating additional demand for CPUs alongside AI accelerators, supporting wider adoption of its EPYC processors. AMD expects the server compute market to grow at roughly a 50% CAGR to approximately $220 bln by 2030.
• Client revenue increased 7% yr/yr to $2.9 bln, supported by Ryzen mobile demand, but declined 4% sequentially as higher memory and component costs weighed on PC sales late in the quarter. AMD is now planning for double-digit declines in overall PC market unit shipments in 2027, although it expects to outperform the market through continued share gains and commercial adoption. Gaming revenue also fell 40% yr/yr to $773 mln, primarily reflecting lower semi-custom sales.
• Non-GAAP gross margin was 56%, up 190 bps yr/yr and flat sequentially, reflecting a richer product mix. Operating margin expanded to 29% from 27% in Q2 and 24% a year ago as revenue growth outpaced operating expenses. AMD guided Q4 gross margin to approximately 55%, reflecting a greater contribution from lower-margin AI accelerators.
• AMD now expects revenue to grow more than 80% in 2027, with server CPU revenue roughly doubling, up from its prior outlook for growth exceeding 70%. Data center AI growth is also expected to exceed prior projections, with Data Center accounting for over 80% of total revenue. Management cited expanded customer deployments and additional supply commitments, although demand continues to outpace capacity.

Briefing.com Analyst Insight

Overall, AMD delivered a very strong quarter, standing in contrast to INTC's report last week. Data Center growth accelerated again as AMD continued gaining server share, with both cloud and enterprise sales more than doubling, while the initial Helios ramp added another source of growth. Demand is also broadening across cloud, enterprise, and agentic AI workloads, benefiting both its EPYC CPUs and Instinct GPUs. That strength is already translating into a much stronger outlook for 2027, with management now expecting server revenue to double, up from its prior forecast for growth exceeding 70%, alongside faster data center AI growth. The main watch points remain gross margins as lower-margin Helios systems become a larger part of the mix, softer PC demand, and AMD's ability to execute on its ambitious growth plans as demand continues to outpace available supply. Still, the continued acceleration in Data Center and upward revisions to its outlook suggest growth expectations continue to strengthen.