AMD reports Q2 data center revenue doubled year-over-year to $7 billion; record overall revenue but stock falls on capex spending concerns

Advanced Micro Devices (AMD) disappointed investors with its latest sales outlook, signaling that shareholders expected a stronger return from the global expansion of AI data centres. The chipmaker projected third-quarter revenue of US$13 billion (S$16.7 billion), plus or minus US$300 million—above the US$12.5 billion consensus but falling short of several elevated Wall Street estimates compiled by Bloomberg. AMD's stock sank 8.8 per cent in postmarket trading following the announcement on August 4.

The market reaction underscores AMD's need to demonstrate more rapid growth to justify its valuation. The company's stock had more than doubled this year, far outpacing a broader rally, after AMD emerged as a key contender to Nvidia in artificial intelligence processors. In July, Chief Executive Officer Lisa Su unveiled new products positioned to outperform Nvidia's offerings, adopting a more aggressive stance in a market AMD predicts will reach US$1.4 trillion by 2030. That move had further inflated investor expectations.

AMD's second-quarter results, while beating analyst forecasts, offered a more tempered narrative. The company reported sales of US$11.5 billion, up 50 per cent, against analyst estimates of US$11.3 billion. Profit, excluding certain items, reached US$1.66 per share, exceeding the predicted US$1.62. Data centre sales more than doubled to US$6.7 billion, slightly exceeding the US$6.6 billion average forecast.

This pattern of beating guidance while disappointing investors is not new for AMD. The company's earnings reports have drawn negative reactions more often than not in recent years, despite frequently topping Wall Street estimates. The timing of AMD's report late in the tech earnings season, combined with strong performances from rivals and customers such as Intel, had raised the bar considerably.

Broader market dynamics support AMD's underlying business fundamentals. Spending on data centres is accelerating as capital expenditures by the largest data centre operators are projected to exceed US$1 trillion by 2027, according to Bernstein analysts. AMD manufactures accelerator chips used to train and run AI software—a market pioneered by Nvidia, which remains the dominant player. "AMD has already established itself as a meaningful second supplier to Nvidia in AI accelerators," Emarketer analyst Jacob Bourne noted, though he emphasized a larger question: whether AMD can keep pace with Nvidia in the broader AI infrastructure market. "AMD is evolving from a chip challenger into an AI infrastructure competitor," he said.

Beyond accelerators, AMD is closing the gap with Intel in central processing units, where generalist chips have experienced a renaissance in data centres supporting AI services. However, AMD faces headwinds from the AI build-out itself. The intense demand has triggered shortages of memory chips, damaging producers of personal computers, smartphones and other devices. Higher memory prices and constrained PC supply are particularly concerning for AMD, as personal computers remain its largest market by volume.