On Tuesday, AMD, a manufacturer of AI server chips, said that its revenue for this quarter is expected to increase by approximately 66% year-over-year, a 21 percentage point acceleration compared to the third quarter. The company also forecast that next year’s revenue growth will exceed 80%, more than double the rate originally projected in its financial model a year ago.
The company also expects gross margin in the fourth quarter to increase slightly by 1 percentage point compared to the third quarter; revenue growth next year will continue to outpace the growth of operating expenses.
Last week, investors grew concerned about the rising capital expenditures of major cloud providers, key customers of AMD and NVIDIA, making AMD’s optimistic earnings outlook particularly significant.
Although AMD's revenue growth rate slowed by 5 percentage points compared to the second quarter, and free cash flow shrank by two-thirds to approximately $550 million due to capital expenditures more than doubling, the expectation of accelerating revenue growth overshadowed these headwinds. Following the announcement, AMD's stock rose more than 8% in after-hours trading.
AMD’s server chip business generated nearly double its revenue in the third quarter, accounting for nearly two-thirds of AMD’s total revenue of $13.4 billion.
Although NVIDIA’s revenue is at least seven times that of AMD and growing faster, NVIDIA’s year-to-date gain as of Tuesday’s regular market close was under 10%, while AMD’s stock has surged 116%. In terms of valuation, AMD is more expensive: AMD’s forward 12-month price-to-earnings ratio is nearly 37x, compared to NVIDIA’s 14x.
In addition to major cloud providers, OpenAI, Meta, and Anthropic are existing customers or users of AMD chips, including cabinet-level products. AMD CEO Lisa Su has given positive assessments of her customers’ capabilities: despite potential challenges, many AMD customers are raising substantial capital through equity and debt to build data centers and are capable of deploying and bringing online their chips by 2027.