AMD's second-quarter revenue and profit, as well as third-quarter revenue guidance, slightly exceeded market expectations. At the same time, gross margin continued to expand as profits grew. The most important datacenter revenue doubled year-on-year and hit a new high for two consecutive quarters. This, along with the MI300 AI accelerator annual sales volume guidance being raised as expected, implies that AI infrastructure spending will continue to increase, driving a significant turnaround of Nvidia's 3% after-hours drop.
In post-market trading on Tuesday, July 30th, semiconductor giant AMD is striving to catch up with Nvidia in the datacenter GPU field.$Advanced Micro Devices (AMD.US)$The financial report for the second quarter of the 2024 fiscal year was released, and investors will be closely watching the annual sales guidance for its MI300 AI accelerator chip.
Due to AMD's Q2 revenue and profit both slightly exceeding expectations, data center AI revenue doubled YoY and set a new high for two consecutive quarters. The midpoint of its Q3 revenue guidance range is $6.7 billion, which is higher than the market's expected $6.62 billion, causing its stock price to rise 5% after hours, and driving rival Nvidia's after-hours stock price to rise from a 3% decline to a 3% increase.
At the 5:00 p.m. eastern time earnings conference call, AMD management increased their expected sales for the datacenter GPU in 2024 from $4 billion to $4.5 billion, and stated Microsoft's increased use of the MI300 chip, refuting market rumors that Microsoft had cut orders for the MI300. This caused AMD's after-hours surge to rapidly expand to 9%, now up over 7%.
1) Main financial data
Quarterly revenue: $5.835 billion, up 9% YoY and 7% QoQ, market expectation was $5.73 billion.
Gross margin: 49% under GAAP, compared with 46% in the same period last year; 53% under non-GAAP, compared with 50% in the same period last year.
Operating profit: $0.269 billion under GAAP, compared with a $20 million loss in the same period last year; $1.264 billion under non-GAAP, up 18% YoY and 12% QoQ, market expectation was $1.25 billion.
Net income: $0.265 billion under GAAP, up 881% YoY; $1.126 billion under non-GAAP, up 19% YoY and 11% QoQ.
Diluted EPS: $0.16 under GAAP, up 700% YoY; $0.69 under non-GAAP, up 19% YoY and 11% QoQ, market expectation was $0.68.
2) Outlook
Q3 revenue: expected to be between $6.4 billion and $7 billion, midpoint of the range is $6.7 billion, representing a YoY increase of about 16% and a QoQ increase of about 15%, analysts expect $6.62 billion.
Non-GAAP gross margin for Q3: expected to be 53.5%, analysts expect 53.8%.
MI300 accelerator chip sales: expected data center GPU sales to be $4.5 billion in 2024. Microsoft increased its usage of the MI300 chip.
Other points from the conference call: MI300 chip revenue exceeded $1 billion in Q2, and they have committed to releasing a new AI processor/chip every year.
3) Business segment data Data center business unit: revenue reached a record high of $2.8 billion, up 115% YoY and 21% QoQ. Client business unit: revenue was $1.5 billion, up 49% YoY and 9% QoQ. Gaming business unit: revenue was $0.648 billion, down 59% YoY and 30% QoQ. Embedded business unit: revenue was $0.861 billion, down 41% YoY and up 2% QoQ.
The data center business unit achieved a record-high revenue of $2.8 billion, up 115% YoY and 21% QoQ.
The client business unit had revenue of $1.5 billion, up 49% YoY and 9% QoQ.
The gaming business unit had revenue of $0.648 billion, down 59% YoY and 30% QoQ.
The embedded business unit had revenue of $0.861 billion, down 41% YoY and up 2% QoQ.
Highlights of AMD's Q2 report: Data center AI revenue doubled YoY with faster growth than the previous quarter, highlighting its contribution to the future.
AMD's financial report also stated that the Q2 adjusted operating profit margin was 22% under GAAP, which is basically in line with analysts' expectation of 21.8%. Q2 capital expenditures were $0.154 billion, higher than analysts' expectations of $0.1271 billion. Q2 R&D expenditure was $1.58 billion, which is in line with the market's expectations.
In terms of total revenue for the quarter, the YoY growth rate of 9% is significantly narrower than the growth rate of 18.2% in the same period of last year, while the non-GAAP gross margin continued to expand from 52% in the previous quarter. The non-GAAP adjusted EPS continuously exceeded the $0.62 of the previous quarter.
The most important thing is that the datacenter's revenue has hit a record high for two consecutive quarters, with a growth rate that has doubled from the same period last year, which is even stronger than the 80% increase in the same period last year, and a 2% increase from last quarter. In terms of product structure, the revenues of products that make 10-30 billion yuan are respectively 401/1288/60 million yuan.
AMD management emphasized the prominent contribution of AI to current and future growth in its financial report statement. Dr. Su (Mingjie), the company's chairman and CEO, stated in the financial report declaration that it achieved strong revenue and profit growth in the second quarter due to record-breaking datacenter revenue push:
"The AI business continues to accelerate, and we are prepared to achieve strong revenue growth in the second half of this year driven by the demands for Instinct, EPYC, and Ryzen processors. The rapid development of generative AI is driving the demand for more computing in every market, and as we provide industry-leading AI solutions across our entire business, this will create tremendous growth opportunities."
CFO Jean Hu also stated that the second-quarter revenue was higher than the mid-point of the company's guidance range, thanks to strong growth in the datacenter and client departments. While maintaining robust profit growth, the gross margin continued to expand. "We have increased our strategic AI investment, laying the foundation for future growth."
AMD promised to release new AI processors/chips every year, catching up with the pace of Nvidia, which has advanced its new product release schedule from once every two years to once a year.
Financial report highlights: The revenue growth of datacenter AI has accelerated, and the revenue growth of PC chips is stable, while gaming and embedded products continue to be weak.
AMD stated that the most important datacenter AI revenue in the second quarter doubled year-on-year, due to a significant increase in Instinct GPU shipments and strong sales growth of the fourth-generation EPYC CPU. Revenue growth was driven by the strong growth in Instinct GPU shipments.
Meanwhile, the revenue growth of the client department, including personal computer chips sales, was mainly due to the sale of Ryzen processors. The revenue of the gaming department decreased significantly compared to the same period last year due to the decline in semi-custom revenues, and the revenue of the embedded department decreased due to customers continuing to adjust inventory levels.
Before the financial report, the market expected gaming revenue in the second quarter to drop by more than 58% year-on-year to $0.655 billion and projected the revenue of the embedded business to drop nearly 42% year-on-year to $0.85 billion. It can be seen that AMD's gaming revenue was lower than expected in the second quarter, while its embedded revenue was higher than expected.
In the first quarter, gaming revenue plummeted by 48% year-on-year and 33% quarter-on-quarter to $0.922 billion, mainly due to a decrease in revenues from semi-custom businesses and Radeon GPU sales. The revenue of the embedded business decreased by 46% year-on-year and 20% quarter-on-quarter to $0.846 billion, mainly due to customers continuing to adjust inventory levels.
In other words, AMD's chip sales for datacenters and PCs did continue to grow significantly year-on-year in the second quarter, while gaming and embedded revenue continued to decline year-on-year. However, in the first quarter, client revenue had a year-on-year increase of 85% to $1.4 billion, greater than the year-on-year increase in the second quarter, but revenue fell 6% quarter-on-quarter, which is not as good as the 9% increase in the second quarter.
This year, AMD's stock price has fallen sharply and has seriously lagged behind the market and the chip stock index, but some analysts are bullish on the potential of each business line.
Prior to the release of the financial report, AMD hit a seven-month low on Tuesday, falling 0.9% after a 4% drop, highlighting the market's cautious sentiment. The stock has fallen nearly 7% this year, significantly lagging behind the cumulative increase of about 14% in the S&P 500 index and Nasdaq, and the cumulative increase of 18% in the PHLX Semiconductor Index.
However, the stock price of AMD's competitor Intel, which has been severely hit in the CPU field, has fallen nearly 40% this year, more miserable than AMD. Nvidia, which has become the "AI favorite" by relying on GPU hardware and related software services, has doubled its stock price this year, with a cumulative increase of 114%.
Since July 10, AMD has fallen 25% from its four-month high, becoming one of the worst-performing stocks in the S&P 500 index. However, the mainstream rating on Wall Street is still "buy," with an average target price of over $190, representing about 40% upside potential.
Srini Pajjuri, an analyst at Raymond James, rated AMD as "outperform"/"shareholding," believing that AMD's revenue from the MI300 AI accelerator product in the second quarter may reach $0.9 billion, and the full-year sales guidance for this area will also be "raised by several hundred million dollars." Currently, AMD expects MI 300 to bring incremental revenue of more than $4 billion in 2024.
The analyst stated that the PC market seems relatively stable, while the server (CPU) market is showing signs of recovery, and the gaming market should rebound from its low level in the second half of the year. However, suppliers of the automotive/industrial integrated circuit implied that the recovery of the Xilinx embedded market might be slower.
According to IDC statistics, global PC shipments in the second quarter increased by 3% year-on-year, achieving growth in the second quarter after eight consecutive quarters of decline. With Nintendo preparing to launch its next-generation game console and Take-Two, the video game company, set to launch the much-anticipated Grand Theft Auto VI later this year, many institutions predict that the gaming industry will rebound by the end of 2024 and 2025.
Editor/Somer