AMD Earnings: Stock Slips Despite Strong Q2 Revenue Growth
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During the quarter, AMD's profit margins took a hit due to $800 million in inventory and related charges tied to U.S. export restrictions on its MI308 AI chips, which are currently barred from shipment to China.
Despite this, CEO Lisa Su highlighted the strength of AMD's computing and AI portfolio, noting record sales of EPYC server chips and Ryzen desktop processors. 'We are well positioned to deliver significant growth in the second half of the year,' she added.
AMD's Segment Highlights
Segment-wise, Data Center revenue rose 14% to $3.2 billion, with EPYC processor demand offsetting MI308 shipment challenges to China. The Client and Gaming unit's sales surged 69% due to strong uptake of Zen 5 Ryzen chips, a richer product mix, and upbeat Radeon GPU demand. However, the Embedded segment's revenue fell 4% to $824 million.
As the chart below shows, AMD's segments have been following this trend for the past several quarters.
Q3 Outlook
Looking ahead, AMD projects Q3 revenue of about $8.7 billion, reflecting 28% year-over-year growth. Also, it is well above the Street's $8.3 billion estimate.
Also, adjusted gross margin is expected to rebound to 54%, assuming no contribution from MI308 shipments to China, as export license applications remain under U.S. government review.
Is AMD a Buy or Sell Now?
Turning to Wall Street, AMD stock has a Moderate Buy consensus rating based on 24 Buys, 10 Holds, and one Sell assigned in the last three months. At $156.47, the average AMD price target implies a 10.23% downside potential.
However, it's worth noting that estimates will likely change following today's earnings report.
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