AMD Smashes Earnings As Record Data Center Revenue Offsets A Big Dip In Gaming

You might not know it by looking at AMD's stock price this morning (more on that later), but the company is coming off its biggest-performing quarter, with third-quarter revenue tallying $6.8 billion. That's an 18% increase year-over-year and a 17% jump sequentially. This led to a monster gain in net income (profit), which shot up 158% year-over-year and 191% sequentially to $771 million.

"We delivered strong third quarter financial results with record revenue led by higher sales of EPYC and Instinct data center products and robust demand for our Ryzen PC processors," said AMD Chair and CEO Dr. Lisa Su. "Looking forward, we see significant growth opportunities across our data center, client and embedded businesses driven by the insatiable demand for more compute."

The data center was certainly kind to AMD, as it has been to other major players in tech amid (especially NVIDIA) an artificial intelligence (AI) arms race, both in hardware and software. So it's no surprise that AMD's data center division is booming. That's not hyperbole, either—AMD posted record data center revenue of $3.5 billion, which is a massive 122% increase from last year and up 25% from the previous quarter.

During an earnings call, Dr. Su said she believes AMD gained server CPU share amid "accelerated" enterprise wins, partially from cloud providers expanding their deployment of EPYC processors across their infrastructures. She also pointed to the initial ramp of AMD's 5th gen EPYC Turin chips base on Zen 5.

"EPYC has become the CPU of choice for the modern data center and our multi-generation product portfolio delivers leadership performance and significant TCO advantages across virtually every enterprise and cloud workload. In cloud, EPYC CPUs are deployed at scale to power many of the most important services, including Office 365, Facebook, Teams, Salesforce, SAP, Zoom, Uber, Netflix and many more," Dr. Su stated.

AMD also saw big gains in client revenue, which climbed 29% year-over-year and 26% sequentially to $1.9 billion. According to AMD, the uptick was driven by "robust) demand for its latest Zen 5-based Ryzen processors. And as far as Dr. Su is concerned, continued strong demand for both AMD's EPYC and Ryzen processors will "result in another quarter of significant year-over-year growth."

These gains in the data center and client computing helped offset significant declines in gaming. AMD's gaming revenue was just $462 million, which represents a sizable 69% drop year-over-year and 29% decline sequentially. AMD attributed this primarily to a decrease in semi-custom revenue, which is mostly served by chips for game consoles like the PlayStation 5 and Xbox Series X|S. During the same earnings call, Dr. Su noted that "Microsoft and Sony reduced channel inventory" of their consoles.

The good news there is that AMD expects to rebound with new gaming devices on the horizon, and also the launch of its next-generation Radeon GPUs based on RDNA 4. Perhaps even better news for gamers, Dr. Su indicated that RDNA 4 will deliver a "strong increase in gaming performance" as well as "significantly higher ray tracing performance" and "new AI capabilities."

Incidentally, despite the record quarter and huge gains in the data center, AMD's stock price is down nearly 9% in early morning trading. The general consensus is that this is base on AMD's fourth quarter forecast of around $7.5 billion, plus or minus $300 million, which is apparently a little softer than some were expecting.