AMD Q2 Earnings Surprise, Revenue Rises Year-Over-Year, Stock Drops

AMD's Q2 2025 Performance: Strong Growth in Key Segments

Advanced Micro Devices (AMD) reported its second-quarter 2025 financial results, showcasing a mix of positive and challenging outcomes. The company’s non-GAAP earnings per share reached 48 cents, surpassing the Zacks Consensus Estimate by 2.13%. However, this figure marked a decline of 30.4% compared to the same period in 2024.

Revenue for the quarter stood at $7.685 billion, exceeding expectations by 3.74% and reflecting a year-over-year increase of 31.7%, as well as a sequential rise of 3.3%. This growth was driven by record sales of Ryzen and EPYC processors, along with higher semi-custom shipments. Despite these gains, AMD shares experienced a 5.12% drop in pre-market trading due to U.S. export controls on MI308 sales to China, which led to an $800 million inventory write-down.

Data Center Segment Shows Resilience

The Data Center segment contributed significantly to AMD’s revenue, with sales reaching $3.240 billion, a 14.3% year-over-year increase. This accounted for 42.2% of total revenues. However, there was a 11.8% sequential decline in this segment. The growth was attributed to strong Instinct GPU shipments and robust EPYC CPU sales.

AMD also expanded its collaboration with Red Hat, aiming to deliver high-performance AI inference using vLLM on AMD Instinct GPUs. Additionally, the partnership focused on enhancing enterprise application deployment through Red Hat OpenShift Virtualization on AMD EPYC CPUs across hybrid cloud environments.

Client and Gaming Segments Experience Substantial Growth

In the Client and Gaming segments, AMD saw impressive growth. The Client segment generated $2.499 billion in revenue, a 67.5% year-over-year increase, making up 32.5% of total revenues. This was fueled by strong Ryzen desktop CPU sales and increased adoption by major OEMs such as Lenovo, HP, and Dell Technologies.

The Gaming segment reported $1.122 billion in revenue, marking a 73.1% year-over-year increase and accounting for 14.6% of total revenues. Sequentially, this segment saw a 73.4% rise, driven by demand for Radeon GPUs, higher semi-custom console revenue, and partnerships with Microsoft and Sony for next-generation gaming technologies.

Launch of New Processor Series

AMD announced the launch of the EPYC 4005 Series processors, designed to offer enterprise-grade features and performance for growing businesses and hosted IT service providers. Additionally, the company introduced the Ryzen Threadripper 9000WX and Ryzen Threadripper PRO 9000X Series processors, delivering top-tier workstation performance for demanding workloads.

Embedded Segment Faces Challenges

The Embedded segment reported $824 million in revenue, a 4.3% year-over-year decline but remained flat sequentially. This segment accounted for 10.7% of total revenues. The decline was attributed to a gradual recovery in demand across test and measurement, communications, and aerospace markets. Elevated inventory levels among customers in the industrial sector also contributed to slower recovery.

Margins and Financial Position

AMD’s non-GAAP gross margin contracted by 990 basis points year-over-year to 43.3%, primarily due to the $800 million inventory write-down related to U.S. export controls. Non-GAAP operating expenses rose by 32.2% year-over-year to $2.429 billion, leading to a non-GAAP operating margin of 11.7%, down from 21.7% in the previous year.

Balance Sheet and Cash Flow

As of June 28, 2025, AMD had $5.867 billion in cash, cash equivalents, and short-term investments, compared to $7.310 billion as of March 29, 2025. Total debt decreased to $3.21 billion from $4.16 billion during the same period. Operating cash flow was $1.462 billion, while free cash flow reached $1.180 billion, representing a 15% free cash flow margin.

In the second quarter, AMD returned $478 million to shareholders through its share repurchase program, with $6 billion remaining under its current authorization.

Q3 Guidance and Market Outlook

For the third quarter of 2025, AMD expects revenues between $8.7 billion and $9 billion, representing approximately 28% year-over-year growth and 13% sequential growth at the midpoint. The company anticipates a non-GAAP gross margin of around 54% and non-GAAP operating expenses of nearly $2.55 billion.

Investment Considerations

Currently, AMD holds a Zacks Rank of #3 (Hold). Investors looking for alternatives in the Computer and Technology sector may consider CommScope (COMM) and OptimizeRx (OPRX), both of which have a Zacks Rank of 1 (Strong Buy). CommScope has gained 183.5% year to date, while OptimizeRx has risen 157.9%. Both companies are set to release their second-quarter 2025 results on August 7.