Advanced Micro Devices, Inc.’s (NASDAQ:AMD) fastest-growing business is no longer the one most people associate with its name. In the June quarter, Data Center revenue reached $6.718 billion, overtaking the combined contributions of its PC, gaming, and embedded businesses. Two years of interest in AI accelerators have changed the balance of its accounts, and yet the segment includes EPYC server processors as well as Instinct GPUs, making it impossible to attribute all that growth to AI accelerator sales alone.
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Bull Case
The improvement is substantial and evident in the company’s earnings. Data Center revenue rose from $3.240 billion a year earlier to 6.718 billion, while segment operating income reached $2.103 billion, reversing a $0.155 billion loss. AMD attributed stronger sales to demand for EPYC processors and Instinct GPUs. Its total quarterly revenue increased from $7.685 billion to $11.536 billion, with GAAP operating income reaching $1.990 billion after a prior-year loss of $0.134 billion. The company is recording operating profits from a business that was loss-making in the comparison period.
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Its remaining operations offer a useful check on the breadth of that improvement. Client revenue increased to $3.062 billion from $2.499 billion, while Embedded revenue reached $0.977 billion from $0.824 billion. The less encouraging figure was Gaming, where sales declined from $1.122 billion to $0.779 billion. AMD’s results therefore reflect diverging end markets rather than uniform strength across its portfolio.
New customer announcements add commercial context without replacing reported revenue. In July, AMD and Anthropic announced an agreement for deployment of up to two gigawatts of Instinct MI450 GPUs, with the first gigawatt scheduled to begin in the first half of 2027. Microsoft also announced plans to deploy AMD’s Helios racks on Azure. These agreements establish intended deployments, but neither release assigns them realized revenue in the June quarter. Read more extensively about AMD’s bull and bear case here.
Bear Case
The earnings comparison needs a qualification. Advanced Micro Devices, Inc.’s (NASDAQ:AMD) year-earlier quarter included $800 million in inventory and related charges tied to US export restrictions on MI308 data-center GPUs. Their absence contributes to the striking recovery in GAAP gross margin, from 40% to 54%.
AMD separately reported a 56% non-GAAP gross margin for the latest quarter, and the difference between those accounting measures matters when comparing profitability. Non-GAAP operating income was $3.094 billion, compared with GAAP operating income of $1.990 billion. AMD excludes items including stock-based compensation and acquisition-related amortization in arriving at that adjusted figure.
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Cash generation was less impressive sequentially. AMD’s reported free cash flow declined from $2.566 billion in March to $1.558 billion in June, although it remained above the $1.180 billion reported a year earlier. Capital expenditures increased from $389 million to $808 million between quarters, with the movements tempering a straightforward reading of the sharply higher operating profit.
Conclusion
Management guided for approximately $13 billion in third-quarter revenue, plus or minus $0.300 billion, and a non-GAAP gross margin of approximately 56%. Actual results are due November 3. Until then, the clearest evidence is that Data Center has transformed Advanced Micro Devices, Inc.’s (NASDAQ:AMD) revenue mix and profitability, while the company still faces uneven demand elsewhere and higher near-term investment. Those facts provide a firmer basis for examining the shares than assigning future revenue to announced AI deployments.
While we acknowledge the risk and potential of AMD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMD and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
