After being a laggard to start the year, Advanced Micro Devices (AMD -3.53%) has rallied strongly during the summer. However, its shares took a dip following the announcement of its second-quarter results, after earnings came in a bit light.
The stock now finds itself up about 30% year to date after the pullback, as of this writing.
Let's take a closer look to see if this decline is an opportunity to buy the stock.
Image source: Getty Images.
Data center in focus
AMD's data center segment has been its biggest growth driver in recent quarters, but revenue rose just 14% in Q2 to $3.2 billion. The slowdown in growth largely stemmed from the company no longer being allowed to sell its MI308 graphics processing units (GPUs) in China during the quarter. This led to a year-over-year revenue decline in its artificial intelligence (AI) business. However, sales are expected to resume in the future once the U.S. government approves its export license to China.
Outside of China, the company said it saw solid progress with its MI300 and MI325 GPUs, with increasing adoption. Seven out of 10 of the top model builders and AI companies now use its GPUs. Meanwhile, AMD claimed with the launch of its MI355 GPU that it matches or exceeds the performance of Nvidia's (NVDA -3.38%) top B200 chip for both training and inference.
At the same time, AMD's central processing units (CPUs) continue to gain market share in the server space. Growth is also being driven by increasing demand for cloud and on-premises compute, and the investments being made in AI infrastructure.
AMD's client and gaming segment, which provides CPUs for computers and GPUs for gaming devices, saw revenue surge 69% in the quarter to $3.6 billion. The company saw strong CPU share gains during the quarter and was helped by strong sell-through for AMD-powered commercial notebooks. Meanwhile, it saw strong demand for its newly launched gaming GPUs, as well as an uptick in semi-custom chip revenue.
AMD's embedded segment, meanwhile, saw a 4% decline in revenue to $824 million. It expects sequential growth in the second half as demand improves across several key markets.
Overall, the company's revenue climbed by 32% to $7.69 billion. Adjusted earnings per share (EPS), however, plunged 30% to $0.48. Analysts were looking for EPS of $0.49 on sales of $7.42 billion, as compiled by LSEG. Note that its EPS was hurt by its $800 million inventory write-down related to Chinese export controls.
Looking ahead, AMD projected Q3 revenue to grow by 28% to $8.7 billion, plus or minus $300 million. The guidance does not include any potential revenue from MI308 shipments to China.
Should investors buy the dip?
The export restrictions on China impacted AMD's Q2 results, although given the comments from President Donald Trump, this headwind should go away in the future. With shipments to China not currently in Q3 guidance, there could be some upside if the company is allowed to begin shipping its GPUs to the country before quarter end.
Excluding China, which the company previously said would have a negative $700 million impact in Q2, its data center revenue would have grown about 39% by my calculations. That's solid, although a slowdown from Q1.
Still, AMD should have a big opportunity in the future as inference -- where it has a solid niche -- becomes a bigger part of the market. The company is also on track to introduce its M400 chip, which it is looking to compete with Nvidia's next-generation Rubin chip.
Turning to valuation, AMD stock trades at a forward price-to-earnings ratio (P/E) of 27.5 times 2026 analyst estimates. That's up significantly from where the stock traded at earlier this year, but if the company can become a meaningful player in the AI inference market, the stock could have a lot of upside in front of it.
As such, I think investors can dip a toe into the stock on its pullback.
