Earnings report sharing/AMD's next quarter guidance is mediocre?! Stock price takes a hit??

$AMD(AMD.US) released its Q3 2024 earnings report after the market closed on October 29th. The data showed an 18% year-over-year revenue increase and improved gross margins compared to the same period last year, yet the stock price dropped over 5% after hours. What other positive data is hidden in the report? Let’s dive in together!

Advanced Micro Devices (AMD), founded in 1969, specializes in designing and manufacturing innovative microprocessors (CPUs, GPUs, motherboard chipsets, TV tuner chips, etc.) for the computer, communications, and consumer electronics industries. It also provides flash memory and low-power processor solutions. AMD is committed to delivering standards-based, customer-centric solutions for technology users—from enterprises and government agencies to individual consumers.

Key Highlights

Record Revenue: Driven by strong sales of EPYC and Instinct data center products and robust demand for Ryzen PC processors, revenue reached $6.8 billion.

Strong Financial Performance: Non-GAAP gross margin was 54%, operating income was $1.7 billion, net income was $1.5 billion, and diluted earnings per share were $0.92.

Data Center Business: Revenue surged 122% year-over-year, fueled by significant growth in AMD Instinct GPU shipments and AMD EPYC CPU sales.

Client Business: Revenue rose 29% year-over-year, thanks to strong demand for the "Zen 5" AMD Ryzen processors.

Gaming Business: Revenue declined 69% year-over-year, primarily due to reduced custom chip revenue.

Embedded Business: Revenue fell 25% year-over-year but increased 8% sequentially.

Q3 2024

Revenue grew 18% year-over-year to $6.82 billion, up from $5.8 billion in the same period last year, surpassing market expectations of $6.71 billion.

By segment:

Data Center: Revenue surged 122% year-over-year and 25% sequentially to $3.55 billion, up from $1.598 billion last year, exceeding market expectations of $3.46 billion. Operating profit soared 240%, with an operating margin of 29%, up from 19% last year.

Client Computing: Revenue rose 29% year-over-year and 26% sequentially to $1.88 billion, up from $1.453 billion last year, beating expectations of $1.7 billion. Operating profit jumped 97% year-over-year.

Gaming: Revenue fell 3% year-over-year and 29% sequentially to $462 million, down from $1.506 billion last quarter, missing market expectations of $577 million. Operating profit plunged 94% year-over-year.

Embedded: Revenue declined 25% year-over-year but increased 8% sequentially to $927 million.

EPS grew 31% year-over-year to $0.92, matching market expectations and up from $0.7 last year.

Gross margin improved by 3 percentage points year-over-year to 54%, above the expected 53.5%.

Operating margin was 25%, up from 22% last year.

Net profit increased 19% year-over-year to $1.504 billion, with a net profit margin of 22%.

Future Outlook

Next quarter’s revenue is expected to grow 22% year-over-year to $7.5 billion, slightly below market expectations of $7.55 billion. Gross margin is projected at 54%, higher than last quarter’s 51% and the same period last year.

Additionally, AMD announced that the MI325X will begin production by the end of next quarter, with plans to release new AI chips annually, including the MI350 in 2025 and the MI400 in 2026.

Summary

This quarter, AMD’s revenue exceeded expectations, and non-GAAP gross margins improved. The Data Center segment hit a record high, driven by strong sales of Instinct GPUs and EPYC processors. The Client Computing segment also saw a 29% year-over-year revenue increase, fueled by robust demand for Ryzen 9000 series processors. Together, these factors pushed gross margins up 3 percentage points year-over-year to 54%. However, the weaker-than-expected guidance for next quarter led to an after-hours stock price decline.

From this quarter’s data, the Data Center segment shows clear growth momentum, now accounting for 52% of total revenue. The Embedded segment, while its operating margin is at a two-year low of 40%, shows slight signs of recovery. Overall, both segments are likely to see significant growth as computing demand continues to rise.

Meanwhile, AMD highlighted that the AI accelerator market is projected to grow from $45 billion in 2023 to $500 billion by 2028, with a 60% CAGR—higher than the previous estimate of $400 billion by 2027. AMD noted strong demand from cloud providers and other companies for AI infrastructure, expecting AI chip supply to tighten further by 2025. AMD is actively ramping production and building customer trust, with progress made this quarter. It forecasts 2024 AI chip sales of $5 billion, in line with market expectations. Currently, AI chip margins remain below the company average, but AMD is focused on meeting customer demand and offering cost advantages. Long-term, AI chip margins are expected to exceed the company average as revenue scales.

Finally, for PCs, AMD anticipates the industry will grow around 5% in 2025, driven by AI PCs.

What do you think? Share your thoughts in the comments!

If you enjoyed this, feel free to like, share, and comment. Most importantly, happy investing!