Finally, some good news for the artificial-intelligence trade. Advanced Micro Devices on Tuesday reported better-than-expected earnings for the third quarter and forecast a strong finish to the year on the back of enormous demand for its AI chips.
The results capped off an excellent day for semiconductor stocks, which have had a tough time over the last month as investors fretted about the durability of AI spending. AMD's customers are still spending big, it appears.
AMD stock rose 7.9% to $521.94 after hours Tuesday. Shares had climbed 3.7% in regular trading. The iShares Semiconductor exchange-traded fund rose 1.8% after the bell, building on a 2.5% gain earlier in the day.
AMD reported earnings of $2.09 a share in the third quarter, surpassing analysts' consensus estimates of $1.95, according to FactSet. Revenue jumped 45% from a year ago to $13.4 billion, above Wall Street's call for $13.1 billion.
AMD expects revenue to total $17 billion in the fourth quarter, plus or minus about $500 million, which is well ahead of analysts' forecast of $16.3 billion. The company's adjusted gross margin target of 55% was in line with estimates.
An earnings miss could have been brutal for AMD. The capital markets that have been funding many of AMD's customers have begun to look a little shaky this fall. On Friday, The Wall Street Journal reported that lenders have become more selective and demanding. The smaller cloud companies "have effectively been shut out of the bond market in recent weeks," The Journal reported, citing sources.
Larger customers like Microsoft, Meta Platforms and Oracle seem to be racing to get capital now while the getting is good. One of the two big AI start-ups, Anthropic, intends to have its initial public offering soon.
As these realities sank in, AMD stock declined nearly 13% to end last week, including a nearly 11% fall on Friday. It began this week with 7.5% Monday drop.
But a big third quarter for AMD's data-center segment, which grew 97% year over year, staved off those concerns. Under CEO Lisa Su, AMD has pivoted from its roots selling chips meant for PCs and gaming consoles. It now mostly sells central processing units (CPU) and graphics processing units (GPU) for AI uses. Meta, for instance, uses AMD silicon to run its Muse personal agent software.
While AMD's PC and gaming sales shrank about 8% from last year, that decline was already baked in. The company avoided the massive PC underperformance that doomed Intel last week, and it is also more reliant on AI in general.
Data-center sales accounted for about 63% of total revenue in the third quarter. A year from now, Wall Street expects that to climb to three-quarters of the top line.
At the same time, relationships between AMD and its customers have gotten very complex, a similar sort of thing we've seen with its competitors Nvidia and Broadcom. In exchange for supply deals, AMD has issued warrants for up to 160 million shares each to OpenAI and Meta. The chip maker agreed to invest $1 billion in Meta's recent equity sale. It may invest up to $5 billion in Anthropic as part of a supply deal. It has guaranteed customer leases up to $4.1 billion.
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