AMD reported record revenue in Q3 2024, driven by strong Data Center and Client segment performance.
From Nasdaq: 2024-10-29 22:00:12
Advanced Micro Devices (AMD) hosted their Q3 2024 earnings call, reporting record revenue of $6.8 billion, an 18% increase year-over-year. Their Data Center segment revenue doubled to $3.5 billion, with strong adoption of EPYC CPUs by key cloud providers like Microsoft and AWS.
AMD’s EPYC CPUs are powering services for major companies like Meta, Cloudflare, and more. Public cloud instances using EPYC processors grew by 20% year-over-year, with wins from Adobe, Boeing, and other enterprise clients. Dell, HPE, and Lenovo have expanded their EPYC platform offerings by 50%.
The launch of AMD’s next-generation Turin family sets performance records across various workloads, with over 130 fifth-gen EPYC enterprise platforms in development. Google and OCI plan to launch fifth-gen EPYC instances next year, showcasing AMD’s continued growth and innovation in the data center market. Oracle’s EPYC CPUs in Turin instances offer superior performance, memory speeds, and networking bandwidth. They are leveraging Intel partnerships to accelerate x86 architecture innovation. MI300X accelerators are being widely adopted by Microsoft and Meta for various workloads, with MI300 instances now available from multiple cloud providers. AI software functionality has been expanded, with ROCm providing a truly open software alternative for developers.
AMD is set to acquire ZT Systems to enhance AI infrastructure capabilities, with plans to close the acquisition in the first half of 2025. The MI325X GPU has been launched, showing promise in terms of performance. Production shipments are expected to begin this quarter. The MI350-series silicon is on track for a launch in the second half of 2025, promising significant AI performance improvements.
Data Center GPU revenue is expected to exceed $5 billion in 2024, up from previous expectations. The Client segment revenue has increased by 29% year-over-year, driven by strong demand for Zen 5 processors. Desktop channel sales grew significantly with the launch of Ryzen 9000 series processors, and the next-gen Ryzen 9000 X3D processors are set to launch in November with superior gaming performance. Mobile sales of Ryzen AI 300 Series CPUs surged with new notebooks from Acer, HP, Lenovo, and others. Ryzen AI Pro 300 Series CPUs launched with enterprise security features. Gaming revenue declined 69%, but new RDNA 4 GPUs with improved ray tracing and AI capabilities are set to launch in 2025. Embedded segment revenue decreased 25%, but strong demand for Versal SoCs is driving growth.
AMD CEO Lisa Su celebrates 10 years with the company, highlighting successful growth arcs. AMD expects strong demand for Instinct EPYC and Ryzen processors to drive significant year-over-year growth. The company sees growth opportunities in Data Center, Client, and Embedded businesses, driven by AI adoption. AMD aims to become an end-to-end AI leader with differentiated solutions.
Financially, AMD had a strong third quarter with revenue reaching $6.8 billion, up 18% year-over-year. Data Center segment revenue doubled, while Client segment revenue grew 29%. Gross margin increased by 250 basis points, driven by higher Data Center revenue. Operating income was $1.7 billion, with diluted earnings per share at $0.92, up 31% year-over-year.
In the Data Center segment, AMD saw record quarterly revenue of $3.5 billion, up 122% year-over-year. This growth was attributed to strong sales of AMD Instinct GPUs and EPYC CPUs. Data Center revenue accounted for 52% of total revenue in the third quarter. Overall, AMD’s financial performance was strong, driven by growth in key segments. In the third quarter, AMD saw a significant increase in Data Center segment operating income, more than tripling from the previous year. Client segment revenue also rose, driven by strong demand for Zen 5 AMD Ryzen processors. However, Gaming segment revenue decreased due to a drop in semi customer revenue. Embedded segment revenue fell, but operating income remained steady.
AMD generated $628 million in cash from operations in the quarter, with a free cash flow of $496 million. Inventory increased to support Data Center products, and cash equivalents totaled $4.5 billion. The company returned $250 million to shareholders through share repurchases. For the fourth quarter, AMD expects revenue to be around $7.5 billion, up 22% year-over-year, driven by growth in the Data Center and Client segments.
In the Q&A session, AMD executives discussed the strong performance of the Data Center GPU business in Q3, leading to an increase in the full-year revenue guidance. The company is optimistic about the market outlook for 2025, with a growing product portfolio and expanding customer engagements. AMD also addressed questions about gross margin guidance for Q4 and potential growth opportunities in the server CPU and Embedded businesses.
Overall, AMD delivered record revenue in Q3, with expansion in gross margin and earnings per share growth. The company is well-positioned for continued growth in the fourth quarter, driven by momentum in the data center and client segments. AMD is making strategic investments to solidify its position as an AI infrastructure leader and drive long-term profitability. Thank you for the question, Aaron. Lisa Su is pleased with the supply chain ramp-up, ensuring capacity for the MI300 and MI325 GPUs. Revenue growth in Q3 was driven by both demand and supply chain improvements. Tight supply expected in 2025, but AMD is prepared for significant growth. Data Center business is the main driver of sequential revenue growth. Client segment also expected to perform well. Gaming and Embedded growth more modest.
In response to Ross Seymore’s question, Lisa Su notes improvement in Embedded business, with segments like test and emulation and aerospace/defense performing well. Communications and industrial segments are softer. Expecting modest growth in Q4 and 2025, but growth may vary by segment. Jean Hu adds that the Embedded business is seeing mixed performance.
Regarding EPYC business, Lisa Su acknowledges success despite potential crowding out effect from the Instinct side. EPYC business still up by around 33%. Lisa Su mentions that customer spending dynamics between CPU and GPU will continue to evolve into 2025. The Data Center CPU business has shown significant progress with large cloud customers adding to their capacity. Zen 4, Zen 5, and Zen 3 products have seen strong demand. AMD CEO, Lisa Su, highlights the positive outlook for Turin CPUs in 2025, optimized for server workloads and AI content, driving growth in the server market.
In the PC market, AMD’s consumer-weighted business has seen strength in the second half of the year due to product launches like Zen 5 and Ryzen 9000 series. Despite seasonal declines expected in the first half of 2025, AMD remains optimistic about mid-single-digit growth in the PC market, driven by AI PC catalysts and Windows 10 end of support.
In the Data Center GPU business, AMD has made significant progress throughout the year, exceeding revenue projections for 2024. The introduction of MI325X on CDNA3 and MI355 on the new architecture is expected to drive revenue growth and workload breadth for existing customers in 2025. CEO Lisa Su emphasizes the strong momentum in the Data Center GPU segment. AMD has seen customer milestones in data centers and plans to exceed $5 billion in revenue by 2024. The market continues to see significant capex investments, and AMD’s product portfolio is strong, with a focus on software support and customer engagement. The company anticipates growth with current customers and expanding workloads with partners like Meta and Microsoft.
The GPU business is approaching the scale of the CPU business, and revenue is expected to grow based on strong customer engagements. The shape of revenue in 2025 may be lumpy due to large customer acquisitions, but overall, AMD feels positive about growth opportunities. The company is prepared for various customer needs, whether air-cooled, liquid-cooled, or rack scale solutions.
AMD expects a balanced portfolio between training and inference with $5 billion in AI revenue. The company has seen strong traction in inference with products like MI300 but anticipates growth in training adoption. AMD aims to close any perceived gap with industry leaders and continue gaining market share with innovative products like MI350.
AMD’s CEO, Lisa Su, doesn’t see AMD as being a year behind the industry leader in terms of specs. She believes that the company’s products are competitive and will continue to close any perceived gap in the market. Su is confident that AMD can gain market share and remain a strong player in the industry. Lisa T. Su, CEO of AMD, discusses the company’s progress in closing the gap with competitors in the market. The MI325 and MI350 series are expected to compete well against rival products. The PC market saw strong growth in Q3, with high sell-through in both desktop and notebook channels.
AMD’s enterprise EPYC business showed positive growth in the third quarter, with increased adoption in both on-prem and cloud deployments. The company anticipates continued growth in enterprise and cloud segments in the fourth quarter. Opportunities for growth in the Enterprise segment, as well as in China, are on the horizon.
AMD’s Data Center GPUs are approaching the size of the company’s compute business, which is under $1.7 billion. To achieve growth in Q4 and for the full year, projections suggest a need for revenues to reach $5.2 billion or $5.3 billion. Opportunities for growth in the China market are also highlighted as a focus for the company’s expansion. Lisa T. Su, AMD’s CEO, revealed that the Data Center segment’s revenue exceeded $1.5 billion in Q3, with Data Center GPU revenue expected to exceed $5 billion. She hinted at potential lumpiness due to customer demand, highlighting the evolving nature of the business as they head into 2025.
Analyst Harsh Kumar congratulated Lisa on her 10-year anniversary and $5 billion in Instinct revenues. He inquired about the hindrances AMD faces in capturing a larger market share compared to key competitors. Lisa emphasized the importance of trust-building and familiarity with products, expressing confidence in AMD’s product ramp and customer expansion for the MI400 series.
Jean Hu, AMD’s CFO, addressed concerns about the gross margin for Data Center GPU products like MI300 and MI325 being below corporate average. She emphasized a focus on addressing customer demand and providing Total Cost of Ownership benefits to drive revenue growth. While gross margins may take time to improve, the long-term outlook is positive for AMD’s data center business. In the latest earnings call, AMD reported a significant increase in revenue and operating income in the Data Center segment. The company aims to drive long-term growth, enhance market presence, and improve gross margins. Analysts are curious about the impact of the new MI325 series and the outlook for the Embedded business in 2025, with expectations of gradual recovery in various markets.
Lisa Su, President and CEO of AMD, expects the majority of the product mix in Q4 to still be on the MI300 platform, with the MI325 series ramping up in Q1. The company sees strength in the Test and Emulation segment, aerospace and defense, and some recovery in automotive, awaiting improvements in communications and industrial sectors. The gradual recovery is anticipated to continue into 2025.
During the earnings call, various analysts including Toshiya Hari, Aaron Rakers, and Ross Seymore posed questions about product mix, market trends, and the performance of AMD in different sectors. With a focus on driving growth and improving margins, AMD remains optimistic about its future prospects despite the challenges posed by market dynamics.
The Motley Fool has positions in and recommends Advanced Micro Devices. The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Nasdaq, Inc. Investors are encouraged to conduct their own research and analysis before making investment decisions. 1. The stock market saw a significant increase today, with the S&P 500 reaching a new record high of 4,000 points. This surge was driven by strong performances from tech and healthcare sectors, as well as positive economic data indicating a strong recovery from the pandemic.
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Read more at Nasdaq: Advanced Micro Devices (AMD) Q3 2024 Earnings Call Transcript