AMD Shares Tumble After 30% Earnings Plunge—US-China AI Chip War Takes Its Toll
Advanced Micro Devices just got caught in the geopolitical crossfire. The chipmaker's Q2 earnings cratered 30% after Washington slammed the brakes on AI chip exports to China—because apparently silicon has become a national security threat now.
Wall Street's reaction? A classic 'sell first, ask questions later' maneuver as AMD shares nosedived in pre-market trading. Because nothing says 'stable investment' like a company at the mercy of export controls and trade war whims.
Meanwhile, analysts are scrambling to downgrade price targets while whispering about 'inventory glut' and 'demand destruction.' Funny how those phrases only appear after the damage is done.
The real kicker? This is exactly the kind of volatility that makes crypto's wild swings look almost predictable by comparison. At least with Bitcoin, you know the rules won't change overnight—unlike semiconductor export policies.
Image source: Getty Images.
Advanced Micro Devices' key numbers
| Revenue | $5.84 billion | $7.69 billion | 32% |
| GAAP operating income | $269 million | ($134 million) | Flipped to negative from positive |
| Adjusted operating income | $1.26 billion | $897 million | (29%) |
| GAAP net income | $265 million | $872 million | 229% |
| Adjusted net income | $1.13 billion | $781 million | (31%) |
| GAAP earnings per share (EPS) | $0.16 | $0.54 | 238% |
| Adjusted EPS | $0.69 | $0.48 | (30%) |
Data source: Advanced Micro Devices. GAAP = generally accepted accounting principles. YOY = year over year.
Investors should focus on the adjusted numbers, which exclude one-time items.
Adjusted gross margin was 43%. Excluding the charges stemming from the export restrictions, the adjusted gross margin WOULD have been about 54%. This metric was 53% in the year-ago period.
Wall Street was looking for adjusted EPS of $0.48 on revenue of $7.43 billion, so AMD met the profit expectation and exceeded the revenue one. It also surpassed its own revenue guidance of 27% year-over-year growth. (It doesn't issue a profit outlook.)
In the quarter, AMD generated cash of $2.01 billion running its operations, up from $593 million in the year-ago period. It ended the quarter with cash, cash equivalents, and short-term investments of $5.9 billion, and long-term debt of $3.2 billion.
AMD's segment performance
| Data center | $3.24 billion | 14% | (12%) |
| Client* | $2.50 billion | 67% | 9% |
| Gaming* | $1.12 billion | 73% | 73% |
| Embedded | $824 million | (4%) | Flat |
| Total | $7.69 billion | 32% | 3% |
Data source: Advanced Micro Devices. *Client and gaming is a single reportable segment; I broke the two parts out for better clarity. **Calculations by author. YOY = year over year. QOQ = quarter over quarter.
Data center growth was primarily driven by strong demand for the company's EPYC central processing units (CPUs) more than offsetting the negative impact of the China export controls on MI308 GPU sales.
Client revenue -- which was a quarterly record -- was mainly driven by robust demand for the Zen 5, the latest Ryzen desktop CPUs, and a beneficial product mix. Gaming revenue was driven by an increase in semi-custom revenue and strong Radeon GPU demand.
Embedded segment revenue edged down 4% year over year because demand in end markets remained mixed. This change was about the same as in the first quarter, when it was down 3% year over year.
What the CEO had to say
CEO Lisa Su's statement in the earnings release:
We delivered strong revenue growth in the second quarter led by record server and PC processor sales. We are seeing robust demand across our computing and AI product portfolio and are well positioned to deliver significant growth in the second half of the year, driven by the ramp of our AMD Instinct MI350 series accelerators and ongoing EPYC and Ryzen processor share gains.
Q3 guidance
For the third quarter, management guided for:
- Revenue of about $8.7 billion +/- $300 million, which at the midpoint equates to growth of 28% year over year.
- Adjusted gross margin of 54%. For context, this metric was 43% in the just-reported second quarter, but would have been 54% excluding the charges associated with the export controls.
This outlook does not include any revenue from Instinct MI308 GPU shipments to China as the company's "license applications are currently under review by the U.S. Government," it said in the release. On the earnings call, CEO Su said that despite this, "we expect Instinct revenue to grow year over year in the third quarter, driven by the ramp of MI350 at multiple customers."
Going into the release, Wall Street had been modeling for Q3 revenue of $8.32 billion, or 27% growth, so AMD's guidance surpassed this expectation.
In short, AMD turned in as good a quarter as could be expected given the brisk headwind stemming from the AI chip export controls.
The stock's decline was probably in part due to some investors feeling unsettled about the uncertainty still surrounding the export restrictions. We don't know how long it will take for the government to review the company's applications for licenses to sell its Instinct MI308 chips to China.
