Shares of Advanced Micro Devices (AMD 7.49%) gained 2.7% in after-hours trading on Tuesday following the chipmaker's release of its second-quarter 2023 report.
The stock's pop is attributable in part to the quarter's revenue and earnings exceeding Wall Street's estimates. Another catalyst for the rise was likely CEO Lisa Su's statement in the earnings release pertaining to artificial intelligence (AI):
Our AI engagements increased by more than seven times in the quarter as multiple customers initiated or expanded programs supporting future deployments of Instinct accelerators at scale. We made strong progress meeting key hardware and software milestones to address the growing customer pull for our data center AI solutions and are on-track to launch and ramp production of MI300 accelerators in the fourth quarter.
AMD's key numbers
| Metric | Q2 2022 | Q2 2023 | Change |
|---|---|---|---|
| Revenue | $6.55 billion | $5.36 billion | (18%) |
| GAAP operating income | $526 million | ($20 million) |
Result flipped to a negative from a positive |
| GAAP net income | $447 million | $27 million | (94%) |
| Adjusted net income | $1.71 billion | $948 million | (44%) |
| GAAP earnings per share (EPS) | $0.27 | $0.02 | (93%) |
| Adjusted EPS | $1.05 | $0.58 | (45%) |
Data source: AMD. GAAP = generally accepted accounting principles.
Investors should focus on the adjusted numbers, as they exclude one-time items.
Wall Street was looking for adjusted EPS of $0.57 on revenue of $5.31 billion, so AMD surpassed both results.
NASDAQ: AMD
Key Data Points
AMD's segment performance
| Segment | Q2 2023 Revenue | Change YOY | Change QOQ |
|---|---|---|---|
| Data center | $1.32 billion | (11%) | 2% |
| Client | $998 million | (54%) | 35% |
| Gaming | $1.58 billion | (4%) | (10%) |
| Embedded | $1.46 billion | 16% | (7%) |
| Total | $5.36 billion | (18%) | Flat |
Data source: AMD. YOY = year over year. QOQ = quarter over quarter.
The company attributed the year-over-year decline in data center revenue primarily to lower third-generation Epyc processor sales stemming from "soft" enterprise demand and higher cloud inventory levels at some customers. The segment's sequential increase was driven by a nearly doubling of fourth-gen Epyc central processing unit (CPU) sales and an increase in Epyc CPU enterprise sales.
As a point of comparison, rival Nvidia's data center revenue was up 14% year over year and 18% sequentially in its quarter ended April 30. This impressive sequential growth was thanks in large part to the company's domination of the data center AI accelerator space.
The client segment revenue's big year-over-year drop and substantial sequential gain probably jump out at you. The decline was due to weakness in the PC market and an oversupply of inventory, while the increase was driven by market conditions improving.
Third-quarter guidance
For Q3, management expects revenue of approximately $5.7 billion, which equates to growth of about 2.4% year over year. Going into the report, Wall Street had been modeling for Q3 revenue of $5.82 billion, or growth of 4.6% year over year. So, AMD's revenue outlook fell somewhat short.
The company also guided for Q3 adjusted gross margin to be about 51%. For context, in the year-ago period, this result was 50%, and it was also 50% in the second quarter of 2023.
All eyes on MI300 launch and customer uptake
In short, AMD's Q2 results were close to what Wall Street -- and, hence, many investors -- expected.
Investors were likely pleased that the company is on track to launch its MI300 AI accelerator chips by the end of the year. How well these chips compete in a market dominated by Nvidia remains to be seen.
Shares of Nvidia and AMD are both having a great 2023, up 218% and 81.6%, respectively, through the market close on Tuesday. The S&P 500 index has returned 20.3% over this period.
