To The Moon

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Introduction

In this analysis, we delve into AMD's Q3 2023 earnings report, which was released after the U.S. stock market's close on October 31st. AMD's performance in the third quarter has shown notable improvements, with revenue reaching $58 billion, a 4% year-over-year increase, slightly surpassing the market's expectations. While AMD's PC business witnessed a robust recovery, other core segments faced year-over-year declines, impacting overall performance. The analysis will provide a detailed overview of key financial and operational aspects.

Financial Analysis

1. Revenue and Profitability

In Q3, AMD achieved a revenue of $58 billion, marking a 4% YoY increase and an 8.2% QoQ rise, slightly surpassing the market's expected $57 billion. Notably, this quarter reversed a trend of consecutive declines, primarily attributed to the significant improvement in the personal PC business, which mirrors the recent performance of Intel's PC division. However, other core business segments at AMD saw YoY declines, including the highly anticipated data center business.

In terms of profitability, AMD's Q3 net profit was $2.99 billion, a remarkable 353% YoY increase. Earnings per share (EPS) for Q3 were $0.18, compared to $0.04 in the same period last year. Adjusted net profit came in at $11.35 billion, a 4% YoY increase, slightly exceeding analysts' expectations of $0.67 per share. This turnaround in profitability is largely attributed to a substantial improvement in gross margin.

Operational Analysis

1. Cost Control Improvement

Strong recovery in the PC business led AMD to achieve its best gross margin performance in this quarter. The GAAP gross profit was $2.747 billion, a 17% YoY increase, with a gross margin of 47%, a 5% increase from the previous year, making it the best quarterly gross margin performance since 2022 Q1.

Operating expenses in Q3 were $2.533 billion, a 4% YoY increase, in line with revenue growth. This is in contrast to the previous quarter, where declining revenue and rising expenses were observed. Operating profit improved significantly, even in a non-GAAP context, with adjusted operating profit at $1.276 billion, demonstrating a 22% operating profit margin, significantly better than the 20% margin in the previous quarter.

2.PC Business Resurgence and AI Chip Aspirations

AMD's PC business revenue surged by 42% to $14.5 billion in Q3, outperforming market expectations. This robust growth in the PC segment was primarily driven by the sales of Ryzen mobile processors, particularly the Ryzen 7000 series CPUs, which contributed to a 46% QoQ revenue increase.

Conversely, data center, gaming, and embedded businesses showed mixed results. Data center revenue in Q3 reached $16 billion, a slight 0.7% YoY decline, mainly due to decreased revenue from semi-custom system-level chips and growth in sales of the fourth-generation EPYC CPUs. The embedded business revenue was $12.4 billion, a 4.6% YoY decrease, largely affected by a decrease in communication market revenue. Gaming business revenue in Q3 was $15.1 billion, a 7.7% YoY decline, partially due to the impact of the U.S. ban on high-end GPUs from Nvidia.

According to AMD's Q3 report, the new AI chip, MI300, is set to enter mass production in Q4, with orders already received from major cloud computing companies. With the strong performance expected from MI300, AMD's data center GPU product segment is projected to bring in $4 billion in revenue in Q4, increasing the revenue forecast to $20 billion for the next year.

AMD's AI chips are poised to challenge Nvidia's market share, especially with some large companies ordering from both manufacturers, as Nvidia faces production capacity constraints.

Performance Guidance

AMD has been relatively cautious in providing performance guidance, both during the recent period of poor performance and the Q3 recovery. For Q4, AMD expects revenue to be in the range of $58-64 billion, a 9% YoY increase on the median estimate, though slightly lower than analysts' expectations of $64 billion. This outlook is influenced by the expected decline in gaming and embedded businesses, which offsets growth in other segments.

Conclusion

In conclusion, AMD's Q3 2023 earnings report shows a significant turnaround in performance, driven by the resurgence of its PC business and a substantial improvement in profitability. However, challenges remain as other core business segments have experienced declines. It is essential to focus on AMD's PC business and the contribution of AI chips to the data center business in the future. With the stock price currently in a consolidation phase, it may present a promising investment opportunity as performance continues to improve.

Thank you for reading.

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