AMD Posts Strong Earnings But Faces Challenges Ahead
Advanced Micro Devices (AMD) announced fourth-quarter 2024 non-GAAP earnings of $1.09 per share, surpassing the Zacks Consensus Estimate by 1.10%, and marking a 31.4% increase compared to the previous year.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Revenues reached $7.658 billion, exceeding the Zacks Consensus Estimate by 1.61% and reflecting a year-over-year growth of 24.2%, while also rising 12% sequentially.
The revenue growth was driven by strong performances in the Data Center and Client segments, although they were somewhat offset by weaker results in Gaming and Embedded segments.
AMD’s Price and Earnings Performance
Advanced Micro Devices, Inc. price-consensus-eps-surprise-chart | Advanced Micro Devices, Inc. Quote
However, AMD shares dropped approximately 9% in pre-market trading due to less-than-ideal guidance for the first quarter of 2025 and concerns about slower growth linked to Artificial Intelligence (AI) initiatives. The company announced it earned over $5 billion from AI revenue in 2024.
A Robust Data Center Performance Drives AMD’s Growth
Data Center revenues jumped 69.1% year over year to $3.859 billion, comprising 50.4% of total revenues, and increased 8.7% sequentially.
Strong sales of Instinct GPUs and EPYC CPUs fueled the growth in this segment.
By the end of fourth-quarter 2024, major companies like Microsoft (MSFT), Google, Amazon Web Services, Tencent, and Alibaba had rolled out over 100 AI instances.
Microsoft introduced new Azure instances utilizing a custom-built EPYC processor, featuring high bandwidth memory for enhanced performance.
EPYC CPU sales saw double-digit percentage growth year over year due to significant deployments with companies such as Akamai, Hitachi, LG, ServiceNow, Verizon, and Visa.
In the Data Center AI sector, MI300X deployments gained traction with cloud partners, including Meta Platforms (META), Microsoft, IBM, Digital Ocean, and Dell Technologies (DELL).
Notably, Meta Platforms implemented MI300X to support its Llama 405B model on meta.ai, while Microsoft used it for several GPT 4-based Copilot services.
Additionally, IBM plans to integrate MI300X within its Watson X platform, and Dell Technologies began offering MI300X as part of its AI solution suite.
Client Segment Sees Noteworthy Gains
The Client segment’s revenues climbed 58% year over year to $2.313 billion, representing 30.2% of AMD’s total revenues, with a sequential increase of 23%.
Demand for Ryzen desktop and mobile processors greatly contributed to this growth.
AMD partnered with Dell Technologies to provide a comprehensive lineup of commercial PCs equipped with Ryzen Pro processors.
Gaming and Embedded Segments Struggle
Conversely, the Gaming segment experienced a decline of 58.8% year over year, generating $563 million, or 7.4% of total revenues, despite a sequential increase of 21.9%.
Reduced sales in semi-custom and gaming graphics negatively impacted this segment’s revenue.
Meanwhile, Embedded segment revenues fell to $923 million, a decrease of 12.7% year over year and 0.4% sequentially, accounting for 12.1% of total revenues. Weakness in industrial and communications markets overshadowed growth in aerospace, defense, and testing sectors.
Improving Margins amid Revenue Growth
AMD’s non-GAAP gross margin expanded by 330 basis points to 54.1% year over year, a result of stronger performance in Data Center and Client revenues.
However, non-GAAP operating expenses rose by 23% year over year, totaling $2.125 billion.
Non-GAAP operating margin increased by 360 basis points to 26.5% in the fourth quarter, bolstered by higher revenues and gross margin.
Strong Financial Position
As of December 28, 2024, AMD maintained cash, cash equivalents, and short-term investments amounting to $5.132 billion, up from $4.544 billion on September 28, 2024.
Total debt stood at $1.72 billion as of December 28, unchanged from the previous quarter.
Operating cash flow reached $1.299 billion, compared to $628 million in Q3 2024.
Free cash flow was recorded at $1.091 billion for the fourth quarter, an increase from $496 million the previous quarter.
During Q4, AMD bought back 1.8 million shares and returned $256 million to shareholders, with $4.7 billion left under its current repurchase authorization.
Cautious Outlook for Q1 2025
AMD forecasts first-quarter 2025 revenues to be approximately $7.1 billion, with a range of +/- $300 million. This mid-point estimate suggests a year-over-year growth of around 30%, but a sequential decline of about 7%.
For Q1, non-GAAP gross margin is expected to hover around 54%, while operating expenses are anticipated to approach $2.1 billion.
Looking ahead to 2025, AMD predicts strong demand will drive growth in its Data Center and Client businesses, while also seeing modest gains in Gaming and Embedded sectors. The company expects double-digit percentage growth in revenue and earnings year over year.
Zacks Rank Update
Currently, AMD holds a Zacks Rank of #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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