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Datacenter Growth Buoys AMD Despite AI Revenue Decline

Datacenter Growth Buoys AMD Despite AI Revenue Decline
 

Advanced Micro Devices (AMD) saw its shares decline by more than 5% following the release of its second-quarter results, which revealed an earnings miss and ongoing concerns about U.S. export controls affecting AI chip sales to China.

The Santa Clara-based semiconductor giant reported adjusted earnings of $0.48 per share, slightly below analysts’ expectations of $0.49 per share, according to data from LSEG. While revenue grew 32% year-over-year to $7.69 billion—beating the $7.42 billion forecast—investors were unsettled by challenges in the company’s artificial intelligence (AI) business.

 

AI Business Hit by Export Restrictions

AMD CEO Lisa Su highlighted the year-over-year decline in AI revenue during the company’s earnings call, attributing it to U.S. export restrictions that effectively halted sales of AMD’s MI308 AI chips to China. She explained that the company is now transitioning to its next-generation products but emphasized caution in its guidance due to the uncertain timeline for resuming shipments to China.

“AI business revenue declined year over year as U.S. export restrictions effectively eliminated MI308 sales to China, and we began transitioning to our next generation,” Su said.

For the third quarter, AMD projected revenue of $8.7 billion, plus or minus $300 million, exceeding analysts’ estimates of $8.3 billion. However, this guidance does not factor in potential revenues from the MI308 chip, which was designed for the Chinese market to comply with U.S. restrictions.

 

Wall Street Analysts Raise Concerns

Some Wall Street analysts have expressed skepticism about AMD’s ability to quickly regain momentum in China. Morgan Stanley analysts described the timeline for restarting shipments as “vague,” while Bernstein analysts warned investors not to expect a significant near-term boost, even if export licenses are granted.

“China upside sounds like it will take time to materialize,” Bernstein analysts noted. “Pull-forward and inventory risks remain, and operating expenses (OpEx) continue to rise, limiting earnings leverage.”

 

Datacenter Business Shows Promise

Despite the challenges, AMD’s datacenter segment, which includes central processors and GPUs, grew 14% to $3.2 billion. Su pointed to strong demand from key customers and expressed optimism about the company’s growth trajectory.

“The data center business is actually the main driver of our growth, and we look at that as the opportunity in front of us,” Su said, adding that she anticipates an “inflection point” in the third quarter.

Goldman Sachs analysts, however, advised caution, noting that scaling AMD’s datacenter GPU business would require significant investment in software and systems, which could weigh on profitability.

 

Looking Ahead

While AMD’s strong revenue growth reflects its robust portfolio, geopolitical tensions and export restrictions continue to pose hurdles. Earlier this year, the company projected an $800 million hit to revenue in the second quarter due to chip restrictions, and its ability to navigate these challenges will be crucial for future success.

 

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