AMD (AMD) Q2 Revenue Jumps 32%

Advanced Micro Devices (AMD -1.39%), a leading semiconductor company best known for its processors and graphics cards, released its results on August 5, 2025. The quarter’s headline news was a record revenue of $7.7 billion (GAAP), up 32% from the same period last year. This significantly outpaced analyst expectations of $7.41 billion (non-GAAP). Earnings per share (Non-GAAP) came in at $0.48, meeting consensus estimates. However, profitability was affected by a one-time $800 million inventory charge tied to U.S. government export controls on certain high-end AI accelerators bound for China, which led to compressed margins. Despite this regulatory setback, management reported robust free cash flow of $1.18 billion and continued momentum across its core businesses, with gains in data center, client, and gaming segments balancing out weakness in embedded systems.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Understanding Advanced Micro Devices: What Drives Its Business?

Advanced Micro Devices is a major designer of central processing units (CPUs), graphics processing units (GPUs), and adaptive chips for personal computers, data centers, gaming consoles, and embedded systems. Its main product lines include Ryzen CPUs for PCs, Radeon GPUs for gaming, EPYC processors for servers, and Instinct accelerators for artificial intelligence (AI) workloads. The company focuses on designing the chips while relying on external partners, like Taiwan Semiconductor Manufacturing Company (TSMC), for manufacturing.

In recent years, AMD has made AI and data center solutions a top priority, investing in both organic R&D and targeted acquisitions. The company competes against larger players such as Intel in CPUs and NVIDIA in GPUs. Success depends on continuous product innovation, partnerships with cloud and enterprise players, supply chain management, and the ability to capitalize on fast-growing markets like AI and high-performance computing.

Key Highlights from the Quarter

AMD posted record revenue of $7.7 billion, led by high demand in its data center and client processor businesses. The data center segment brought in $3.24 billion (GAAP), up 14%, primarily due to strong demand for EPYC server CPUs, which serve as the brains behind cloud and enterprise servers. These restrictions blocked shipments to China and reduced non-GAAP profit margins. Without the regulatory charge, non-GAAP gross margin would have stood at 54% instead of the reported 43%, highlighting the underlying strength in core operations.

The Client and Gaming segment combined to generate $3.6 billion, soaring 69% year-over-year on a GAAP basis. Client revenue, at $2.5 billion, jumped 67% year-over-year thanks to rising sales of 'Zen 5' Ryzen desktop CPUs and a shift towards higher-end products. Gaming revenue reached $1.12 billion, increasing 73% year-over-year as AMD benefited from renewed demand for Radeon gaming GPUs and custom silicon used in gaming consoles. In contrast, embedded segment revenue lagged at $824 million (GAAP), down 4%, with management pointing to mixed end-market demand but expressing optimism for a rebound in the second half of the year.

Free cash flow (non-GAAP) was a standout at $1.18 billion, an increase of 169% over Q2 2024, thanks to higher sales and disciplined management of cash reserves. At quarter-end, total cash and short-term investments stood at $5.87 billion, while total debt (GAAP) grew to $3.22 billion as of June 28, 2025, reflecting recent acquisitions and investment in future growth. Operating income on a non-GAAP basis was $897 million, down 29%, largely due to the export-related inventory charge.

On the innovation front, the company launched several products: the Instinct MI350 series (AI accelerators designed for generative AI workloads), Radeon RX 9060 XT (gaming GPU), and the EPYC 4005 (server CPU). AMD also highlighted partnerships with notable firms, including Meta, OpenAI, Oracle, and Microsoft, reinforcing traction in the AI and cloud ecosystem. The sale of ZT Systems’ manufacturing business to Sanmina, while integrating ZT’s design team, strengthened AMD’s aim to deliver system-level AI solutions. Notably, the company faces continued competitive pressure from NVIDIA in AI accelerators, even as it gains share in CPU markets versus Intel.

One-time events included the approximately $800 million regulatory inventory charge related to export controls, which substantially reduced gross margin and profit for the quarter. Meanwhile, GAAP net income benefited from a tax reserve release, but this was a one-off and did not affect underlying operating performance. AMD does not currently pay a dividend.

Looking Ahead: Management's Outlook and Key Areas to Watch

AMD projected Q3 FY2025 revenue of approximately $8.7 billion, with a potential swing of $300 million in either direction. This implies a 28% increase from the same period last year and a 13% sequential rise. Management expects non-GAAP gross margin to recover to around 54%, a return to prior levels before the export-related charge. Notably, this outlook excludes any revenue from Instinct MI308 shipments to China, with approvals from the U.S. government still under review at the reporting date. Leadership expressed confidence in “significant growth in the second half of the year,” powered by MI350 AI accelerators and continued share gains for EPYC and Ryzen product lines, as stated in AMD's Q2 earnings release.

Investors should keep a close eye on several factors in coming quarters: the progress of the MI350 series AI accelerators in the market, AMD’s efforts to diversify away from regulatory risks tied to China, pricing trends in both server and client CPUs, and the trajectory of the embedded segment. Regulatory and geopolitical risks, margin volatility, and ongoing product launches across AI, gaming, and compute will remain central to the company’s financial story in fiscal 2025. AMD does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.