AMD Q3 preview: Emphasis on data center business, AI-focused chips

When Advanced Micro Devices (NASDAQ:AMD) posts third-quarter results on Tuesday, investors will focus on data center revenue and the semiconductor firm’s guidance for artificial intelligence-focused chips.

Wall Street expects the California-based chip designer to post quarterly EPS of $0.92, implying a rise of 31.4%, while revenue is expected to increase 15.7% Y/Y to $6.71B.

AMD, which counts cloud computing giants including Microsoft and Meta Platforms as its customers, said that its AI chip revenue exceeded $1 billion for the first time in the second quarter, thanks to surging demand for its artificial intelligence-focused chips.

Eyeing the quarterly earnings, Northland analyst Gus Richard said he expects AMD to report revenue at or above the high end of guidance, driven by share gains in server CPUs and client PCs as well as continued growth in AI revenue.

Richard also noted that AMD is expected to guide revenue above consensus for Q4, driven by strong enterprise market and continued market share momentum in AI.

Oppenheimer expects data center revenue to increase 21% quarter over quarter for Q3 and 114% year over year, according to its model.

Despite the increasing demand for AI-focused GPUs, the company faced some supply constrains in the first half of 2024. However, the company has gained momentum with the introduction of another GPU accelerator, MI325 and optimized supply chain.

“We believe that AMD is best positioned to provide a third party relatively like for like alternative to Nvidia’s GPUs. And with our estimate for AMD to realize a little over $10B in accelerator revenues suggesting a share closer to 5% than 10% of Nvidia revenue, we see our outlook for AMD’s data center GPU as meetable/beatable,” said Wedbush analyst Matt Bryson.

Earlier in October, Intel and AMD joined hands to form an x86 ecosystem advisory group, which will help developers focus on new ways to expand the x86 ecosystem, and make it easier for software to be created.

Over the last 2 years, AMD has beaten EPS estimates 75% of the time and has beaten revenue estimates 88% of the time.

As per the Seeking Alpha’s Quant Ratings, Advanced Micro Devices has a Hold rating, while Seeking Alpha analysts and Wall Street are bullish on the stock and rated it a Buy.

Over the last 3 months, EPS estimates have seen 7 upward revisions and 26 downward. Revenue estimates have seen 27 upward revisions and 7 downward.

Advanced Micro Devices shares have jumped about 6% in this year so far, compared to the broader S&P 500 index gain of nearly 22%.