AMD Reports Strong Q3 Earnings but Lowers Outlook for Q4
Advanced Micro Devices (AMD) announced third-quarter 2024 non-GAAP earnings of 92 cents per share, exceeding the Zacks Consensus Estimate by 1.10%. This number represents a significant increase of 31.4% from the same quarter last year.
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Revenues reached $6.82 billion, which also surpassed the Zacks Consensus Estimate by 1.59%. This reflects an impressive increase of 17.6% year over year and 17% compared to the last quarter.
The company’s revenue growth was driven largely by strong performance in the Data Center and Client segments. However, this was somewhat offset by weaker results in the Gaming and Embedded segments.
AMD’s Revenue Breakdown
Advanced Micro Devices, Inc. price-consensus-eps-surprise-chart | Advanced Micro Devices, Inc. Quote
In pre-market trading, AMD shares dipped by approximately 8.45%, largely due to uninspiring guidance for the fourth quarter of 2024. Year to date, AMD’s performance has lagged behind the Zacks Computer & Technology sector, with AMD shares rising 12.8% compared to the sector’s robust 26.4% gain.
Data Center Growth Drives Revenue Increase
Data Center revenues surged by 122.1% year over year to $3.55 billion, which accounted for 52% of total revenues. Sequentially, these revenues increased by 25%.
AMD’s revenue growth was fueled by its strong Instinct product lineup and robust sales of the fourth-gen EPYC CPUs. As of the end of the third quarter, AMD saw a 20% increase year over year in public cloud instances, growing to over 950 deployments by major companies like Microsoft, AWS, Uber, and Netflix.
Notably, Meta Platforms utilized over 1.5 million EPYC CPUs globally to support its social media networks. The EPYC instance adoption also grew among enterprise clients, including companies like Adobe, Boeing, and Tata.
In addition to these achievements, AMD expanded its customer base in the third quarter, securing contracts with major firms in energy, technology, and automotive sectors, including Airbus, FedEx, and HSBC.
Moreover, Microsoft has ramped up its utilization of MI300X accelerators to drive its AI initiatives, including the popular GPT-4 and various co-pilot services across its software line.
AMD is also pursuing growth through strategic acquisitions, recently announcing an agreement to acquire ZT Systems, a provider of AI infrastructure for large hyperscale computing firms. This move will help AMD accelerate its development and deployment of next-gen AI hardware.
The Client segment fared well, with revenues climbing by 29.5% year over year to $1.88 billion, contributing 27.6% to total revenues. This figure also represented a sequential increase of 26%.
In contrast, the Gaming segment faced challenges, with revenues falling by 69.3% from the previous year to $462 million, accounting for only 6.8% of total revenues. This marks a 29% decline from the prior quarter. The Embedded segment reported revenues of $927 million, down 25.4% year over year but up 8% sequentially, constituting 13.6% of total revenues.
Marginal Growth in Profitability
The non-GAAP gross margin improved by 300 basis points year over year, reaching 54%, thanks to the growth in the Data Center and Client segments. However, non-GAAP operating expenses rose by 15.3% year over year to $1.72 billion.
Consequently, the non-GAAP operating margin also expanded, increasing by 300 basis points year over year to 25% in the third quarter.
Solid Balance Sheet and Cash Flow
As of September 28, 2024, AMD reported cash and cash equivalents of $3.89 billion, a slight decrease from $4.11 billion on June 29, 2024. Total debt remained stable at $1.72 billion over the same period.
Operating cash flow grew to $628 million, up from $593 million in the second quarter of 2024, while free cash flow improved to $496 million in the third quarter from $439 million in the previous quarter.
Disappointing Q4 Forecast
Looking ahead, AMD anticipates fourth-quarter 2024 revenues to be around $7.5 billion, with a potential variance of +/- $300 million. At the mid-point, this estimate indicates approximately 22% year-over-year growth and about 10% sequential growth.
AMD expects strong performance across the Data Center, Client, and Gaming segments compared to the previous quarter. However, revenues from the Embedded and Gaming segments are expected to decline year-over-year.
For the upcoming fourth quarter, AMD has forecasted a non-GAAP gross margin of roughly 54%, with operating expenses slated to be about $2.05 billion.
AMD’s Stock Ranking and Alternatives
Presently, AMD holds a Zacks Rank #4 (Sell). Other stocks within the sector that rank better include AudioEye (AEYE), Astera Labs (ALAB), and Angi (ANGI), each holding a Zacks Rank #2 (Buy). You can view the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Year to date, AudioEye shares have skyrocketed by 319.4%, and the company plans to report its third-quarter results on November 7. Astera Labs shares have risen 19.4% this year, with its earnings report set for November 4. Angi, on the other hand, has seen a decline of 3.6% year to date, and is set to release its earnings on November 11.
Exploring the Top Semiconductor Stock
Interestingly, one semiconductor stock has emerged as a strong contender, currently only 1/9,000th the size of NVIDIA, which has skyrocketed over 800% since our recommendation. While NVIDIA remains a strong player, our top chip stock is poised for substantial growth.
With increasing earnings growth and a broadening customer base, this company is well-positioned to meet the surging demand for Artificial Intelligence, Machine Learning, and the Internet of Things. The global semiconductor manufacturing market is projected to jump from $452 billion in 2021 to $803 billion by 2028.
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