For most of the history of the personal computer, AMD was the other chip company. Intel made the processors and AMD made the cheaper processors. If you wanted to explain how far apart they were, you didn’t need a ratio, because everyone already knew. That is changing, and fairly quickly. AMD reported a record $13.4 billion of third-quarter revenue on Tuesday, up 45 percent from a year earlier, and it told investors to expect about $17 billion in the fourth quarter. Intel has guided its own fourth quarter to $15 billion to $16 billion. If both companies come in where they say they will, AMD would post more revenue than Intel for the first time ever, as Nick Indge pointed out at Ars Technica, citing Tom’s Hardware.
The arithmetic is less close than it sounds. Here is AMD’s chief financial officer, Jean Hu:
We expect revenue to be approximately $17 billion, plus or minus 3%. The middle point of our guidance represents approximately 66% year-over-year revenue growth, primarily driven by the acceleration of our Data Center segment.
Three percent of $17 billion is $510 million, so the range runs from about $16.49 billion to $17.51 billion. The bottom of AMD’s range sits above the top of Intel’s. For Intel to stay ahead, AMD would have to miss its own guidance by more than it allows for while Intel beats its own by more than it allows for, both in the same quarter. That has been known to happen. It is not the bet I’d take. According to AMD’s earnings release, the midpoint is about 27 percent higher than the quarter it just reported.
It helps to remember how recently this would have looked silly. Intel’s own third-quarter results came to $16.5 billion, roughly $3.1 billion more than AMD’s quarter, and Intel’s numbers were growing too. The trouble is that Intel’s fourth-quarter range comes in under that $16.5 billion, while AMD’s is about $3.6 billion above its own last quarter. Intel’s shares fell more than 22 percent in after-hours trading when it put out that outlook, which analysts had expected to be higher. So the crossover comes from both directions: AMD is rising quickly and Intel is, for one quarter at least, going the other way.
Where the money is
Basically all of AMD’s growth is coming from one place. Its data center segment brought in a record $8.5 billion in the quarter, up 97 percent from a year earlier, which makes it about 63 percent of the company’s revenue. AMD credits demand for its EPYC server CPUs and the launch of its Instinct MI450 series GPUs, the chips it sells into the artificial-intelligence buildout that everyone else in the industry is also selling into. That buildout is being paid for in some increasingly creative ways, but on a chipmaker’s income statement the revenue all counts the same.
The more interesting number is the margin. Operating margin in the data center business went from 25 percent to 34 percent, and operating income from the segment rose 168 percent to $2.88 billion. So revenue doubled and profit nearly tripled. This is how a business behaves when demand runs ahead of supply: once you’ve covered fixed costs like research and development, each extra server chip is mostly profit, and buyers who are desperate for capacity don’t negotiate very hard.
Chief executive Lisa Su said AMD “delivered a record quarter with revenue exceeding the high end of our guidance as Data Center segment sales nearly doubled year-over-year,” and that the company expects growth to pick up further in the fourth quarter as it ramps production of its Helios systems and its “Venice” processors. On the earnings call, management said 2027 revenue should grow more than 80 percent and that server revenue should double.
Meanwhile, gaming
Gaming revenue fell 40 percent to $773 million, which works out to about $1.29 billion a year ago. AMD blames “lower semi-custom and graphics revenue.” Translated: “semi-custom” means the chips AMD designs for game consoles, and “graphics” means the graphics cards people buy for their PCs. Both sold less.
The rest of the business was fine. Client revenue, meaning Ryzen processors for desktops and laptops, rose 7 percent to $2.95 billion, led by mobile chips. Combined with gaming, the client-and-gaming segment came to $3.7 billion, down 8 percent. Embedded revenue, which covers the systems-on-chip, FPGAs and boards that AMD sells to go inside other companies’ hardware, rose 29 percent to $1.1 billion. AMD credits gains in “aerospace and defense, automotive, communications, and industrial end markets,” which is more or less every market that doesn’t involve gamers.
So AMD’s old core business, selling chips to people who play games, is shrinking quickly while the data center business grows faster. A 40 percent drop in gaming used to be a crisis for this company. Now it costs about $500 million a year-over-year in a quarter where data center revenue went up by about $4.2 billion. Gaming is now roughly 6 percent of revenue.
The other numbers
AMD earned $2.09 a share on an adjusted basis, against the $1.95 analysts expected, and revenue of $13.38 billion beat estimates of $13.09 billion, CNBC reported. On a GAAP basis it earned $1.46 a share, a figure that includes a $1.1 billion non-cash warrant charge. That’s the usual gap between the profit the company wants you to look at and the profit the accountants make it report. The stock rose about 8 percent in extended trading and then gave back some of the gain, which CNBC tied to election results coming in that evening. That is a fair reminder that a company can have its best quarter ever and still not be the biggest news of the night.