Advanced Micro Devices has to share its results in a good-news-bad-news environment when it reports earnings Tuesday afternoon.
On the one hand, the transformation of the company under CEO Lisa Su is reaching a crescendo, with sales growth accelerating and operating profit margin expanding.
On the other hand, 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.
AMD mostly sells central processing units (CPU) and graphics processing units (GPU). Its roots are in chips meant for PCs and gaming consoles, but under Su the company has blazed a trail into the data center, and its CPUs and GPUs are very highly regarded for artificial-intelligence uses. Meta is a prominent customer, and uses AMD silicon to run its Muse personal agent software.
Wall Street analysts project that the company will have $13 billion in third-quarter sales, rising 42% from last year. Data center revenue is seen at $8.2 billion, up 91% from a year earlier. This will be offset by the slackening sales for PCs and gaming consoles, with revenue in these market segments expected to decline by 8% over the last year.
With data center sales outgrowing the rest of the company, the average analyst sees the unit being responsible for 63% of total revenue. A year from now, Wall Street expects that to climb to three-quarters of the top line.
Adjusted operating margin is seen at 28%, getting back to the highs of the Covid lockdown demand for PCs and game consoles. Wall Street expects new highs in this metric next year.
Adjusted earnings per share are projected at $1.95, up from $1.20 last year.
The 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.
On the earnings call, analysts will be looking for some color -- if not outright guidance -- for next year when AMD will be ramping deliveries of new generations of CPU and GPU servers, dubbed Helion and Helios. Wall Street is expecting a breakout year with over $90 billion in 2027 sales -- up 77% -- and a 34% adjusted operating margin.
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