AMD Passes Silicon Market Stress Test, Nearly Doubles Data Center Sales

AMD entered Tuesday having beaten analysts’ top and bottom earnings estimates for three straight quarters. Make that four.

But that’s just the narrow view. The US chipmaker also entered the day bearing the boulder-heavy weight of the market’s AI-nxiety after rival Intel’s wipeout last week following a disappointing third quarter result. AMD passed the Silicon Stress test and gifted semiconductor investors a sigh of relief.

‘Real Silicon and Real Revenue’

“The market spent October questioning whether AI capital spending converts into revenue and cash flow,” wrote Zacks Investment Research senior equity strategist Bryan Hayes, on Tuesday. “The debate shifted from capability to financing, and it took real casualties among the companies carrying debt to fund the buildout.” AMD certainly felt the pressure, with its shares down 23% in the last month.

Last week, long-standing competitor Intel was hit even harder. Its $16.5 billion third quarter revenue was in line with expectations, but its executive’s fourth quarter revenue target of $15 billion to $16 billion came up short, kind of like your putting game. Intel’s stock nose-dived nearly 29% in a single day and is down more than 35% in the last week. Executives blamed the weak forecast on a worse-than-expected decline in the personal computer market, where manufacturers are getting slammed by rising memory costs. Global PC shipments plunged 21% in the third quarter, according to Counterpoint Research, weighing heavily on Intel’s legacy income. Still, there was a silver lining: Intel’s data center and AI segment rose 78% and made $3 billion in operating profit.

Makers of central processing units (CPUs) like AMD and Intel spent years playing kid brother to Nvidia and its GPUs in the AI market. But with the advent of agentic AI like Meta’s wildly popular Muse, which requires the continuous general-purpose computing power of CPUs, their value has exploded. While AMD also makes CPUs for PCs, it’s not as exposed as its rival. Nearly two thirds of revenue comes from the data center unit, meaning what was a silver lining for Intel last week proved a golden ticket for AMD on Tuesday:

• Revenue at AMD’s data center segment nearly doubled, climbing 97% year-over-year to a record $8.5 billion in the third quarter. Hayes, the Zacks equity strategist, said anything above $8.3 billion could be taken to mean AI spending “is landing on real silicon and real revenue.”
• The Santa Clara-based chipmaker’s $13.4 billion in revenue and $7.2 billion gross profit came in ahead of expectations, and its $17 billion outlook for fourth quarter revenue is well ahead of the $16.2 billion average analyst estimate. Beyond the fourth quarter, CEO Lisa Su said last month AMD plans to “substantially increase our supply in 2027” to meet soaring demand, while Intel leader Lip-bu Tan expressed disappointment his firm can only supply about half of what customers want.

Rally the Troops: Chipmakers had shown signs of life leading up to AMD’s report yesterday. Broadcom closed up more than 3% and Micron and Nvidia more than 2%. AMD shares, which traded up 8.3% after hours following its earnings report, are poised for gains today. Wall Street doesn’t see the upward trajectory stopping any time soon, either: The average $655 price target of 41 analysts surveyed by Zacks implies a 40% upside on AMD’s stock in the next 12 months.