Advanced Micro Devices Inc. exceeded analyst expectations with strong second-quarter results, buoyed by the success of its Ryzen line of Intel Corp. x86-compatible processors and favorable reviews of its new Epyc line of chips for the data center. The positive results sent shares up more than 10 percent in after-hours trading and prompted AMD to raise its outlook for full-year revenue growth. The company now expects annual revenue to increase by a mid- to high teens percentage rate compared with earlier guidance of low double-digit percentage growth.

Second-quarter revenues of $1.22 billion rose 24 percent from a year earlier, while operating income before certain costs such as stock compensation was $49 million, compared with a $6 million loss in the second quarter of 2016. Analysts had expected $1.16 billion in sales and break-even earnings. This represented a turnaround from first-quarter earnings that disappointed investors due to weak server sales.

The recovery is driven by AMD's refreshed product family that includes Epyc, Ryzen, and new Radeon RX Vega graphics cards. Epyc is considered pivotal to the company's turnaround, with AMD claiming up to 47 percent better performance than comparable chips from Intel. Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, noted that "AMD has a lot to look forward to, as none of its numbers incorporates sales of Epyc server parts, only limited sales of the new Radeon Vega and none of the Ryzen notebook parts." Chief Executive Lisa Su reported that the company has received endorsements and initial orders from major infrastructure providers including Hewlett Packard Enterprise Co., Dell Technologies Inc., and Microsoft Corp., as well as cloud providers. "We are on track to re-enter the data center market in a major way," Su said. Epyc is seeing faster-than-expected adoption by cloud providers in particular; as Su explained, "The cloud guys are making up a bigger piece of the market and they tend to move faster." While enterprise sales cycles are slower, AMD expects them to ramp up over the remainder of the year. "Both enterprise and cloud are important, though cloud is a little lumpier" in buying patterns, Su said.

Graphics processing unit chips are also contributing to stronger results, with better-than-expected sales of the new Radeon RX Vega consumer graphics cards, which began shipping in the quarter. These chips are primarily used in gaming consoles but are increasingly finding applications in machine learning and blockchain. "We see strong demand for graphics in the third quarter," Su said, when gaming consoles see seasonally stronger sales. "I think we understand the market better. The products are significantly stronger." However, Su appeared to retreat somewhat from AMD's earlier claims of targeting Nvidia Corp. in machine learning applications, stating that gaming would be the core of the GPU business going forward.

AMD's research and development investments are concentrated on growth areas including data center, GPU, and machine learning, with the company pursuing a competitive race with Intel and others to move to 7-nanometer manufacturing technology. Su indicated AMD believes it holds an edge in this area. "That project is progressing well. We expect [7 nm] will give us a strong competitive roadmap for several generations," she said.