AMD Q2 Earnings Beat Estimates, Revenues Up Y/Y, Shares Fall

Core Insights - Advanced Micro Devices (AMD) reported second-quarter 2025 non-GAAP earnings of 48 cents per share, exceeding the Zacks Consensus Estimate by 2.13%, but down 30.4% year over year [1] - Revenues reached $7.685 billion, surpassing the Zacks Consensus Estimate by 3.74%, marking a 31.7% year-over-year increase and a 3.3% sequential rise, driven by record sales of Ryzen and EPYC processors [1] Financial Performance - Data Center revenues increased 14.3% year over year to $3.240 billion, representing 42.2% of total revenues, although they decreased 11.8% sequentially [3] - Client and Gaming segment revenue was $3.6 billion, up 69% year-over-year, with the Client segment growing 67.5% to $2.499 billion, accounting for 32.5% of total revenues [6] - The Gaming segment's revenues rose 73.1% year over year to $1.122 billion, driven by strong demand for Radeon GPUs and collaborations with Microsoft and Sony [8] Product Developments - AMD expanded its collaboration with Red Hat to enhance AI inference and enterprise application deployment using AMD Instinct GPUs and EPYC CPUs [4] - The company launched the EPYC 4005 Series processors, targeting enterprise-grade performance for growing businesses [5] - New Ryzen Threadripper 9000WX and PRO 9000X Series processors were announced, aimed at high-performance workstation applications [7] Margin and Expenses - Non-GAAP gross margin contracted by 990 basis points year-over-year to 43.3%, primarily due to an $800 million inventory write-down related to U.S. export controls [11] - Non-GAAP operating expenses increased 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 [11] Cash Flow and Shareholder Returns - As of June 28, 2025, AMD had cash and short-term investments of $5.867 billion, down from $7.310 billion in March 2025 [12] - Free cash flow was $1.180 billion in Q2 2025, with a free cash flow margin of 15%, and AMD returned $478 million to shareholders through a share repurchase program [13] Future Guidance - AMD expects third-quarter 2025 revenues of $8.7 billion (+/-$300 million), indicating approximately 28% year-over-year growth and 13% sequential growth [14] - The company anticipates a non-GAAP gross margin of roughly 54% for Q3 2025, with operating expenses expected to be nearly $2.55 billion [14]