Advanced Micro Devices’ (AMD) second-quarter results last night exceeded expectations. However, the market responded negatively, sending AMD shares down more than 5% in early trading today. The pullback was driven by lower data center artificial intelligence (AI) revenue. However, AMD’s long-term growth trajectory remains solid.
The primary reason behind the pullback was a year-over-year decline in AMD’s data center artificial intelligence (AI) revenue, which spooked the market. A key contributor to this softness was the impact of U.S. export restrictions, which significantly reduced sales of AMD’s MI308 series accelerators to China. Additionally, the transition to AMD’s next-gen MI350 series also temporarily affected sales as customers awaited the new products.
Despite that, AMD delivered a strong quarter. Revenue for Q2 came in at $7.7 billion, marking a 32% increase from the same period last year. This was driven by record sales of Ryzen and EPYC processors and robust demand in the gaming segments. AMD saw strength across most of its business lines, which was enough to more than offset the short-term challenges in AI-related data center revenue.
The Data Center segment generated $3.2 billion in revenue, up 14% from last year, powered by increasing adoption of EPYC CPUs across both cloud and enterprise customers. Meanwhile, the Client and Gaming segments posted impressive numbers. Client revenue surged 67% year-over-year to a record $2.5 billion, propelled by booming sales of Ryzen desktop CPUs, and a favorable product mix.
Gaming revenue rose 73% to $1.1 billion, driven by strong demand for AMD’s newly launched gaming GPUs and higher semi-custom shipments as inventory levels returned to normal. With the holiday season approaching, gaming sales are likely to remain elevated.
While the data center AI business declined in Q2, it remains well-positioned to mark a significant reacceleration in growth. The company has laid out a roadmap that includes a significant ramp-up in its AI data center business. Management has confidence that this segment alone could grow to tens of billions in annual revenue over time. Momentum is already building. AMD advanced its MI300 and MI325 accelerator products during the quarter, securing new business from major cloud providers and Tier 1 customers. This sets the stage for a broader rollout of the MI350 series, which is designed to handle demanding AI workloads at lower cost and complexity.
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