AMD Stock Falls 6% After Q2 Earnings; Here’s What Disappointed Investors

AMD Stock fell over 6% in trade on August 6 as per Google finance, despite the company reporting a 32%  year‑on‑year rise in revenue to $7.7 billion in Q2 FY25. The fall in AMD share price was mainly on account of the company's profit being impacted by export restrictions and weaker-than-expected margins.

While AMD posted record free cash flow and strong growth in client and gaming, export constraints and margin compression spoiled the sentiment. Let us unpack with this blog what happened and what lies ahead.

AMD Q2 Earnings Report: Key Financial Highlights

Source: AMD’s Q2 FY2025 Earnings Release

Although AMD’s revenue beat expectations and free cash flow posted a new high, gross margin fell sharply in Q2 due to $800 million in inventory and write-downs tied to U.S. export restrictions on MI308 AI chips destined for China. Margins would have reached roughly 54% without this disruption, the company said.

A key contrast between operating income and net income shows how the company has made net loss in this quarter through their operations, while they have posted a huge YoY growth in net income which mainly comprises income from other sources.

AMD’S Segment Performance Breakdown

Source: AMD’s Q2 FY2025 Earnings Release

The chipmaker’s data center revenue rose 14%, showing steady growth driven by early traction for AMD’s MI300 series. However, this pace continues to lag Nvidia’s 73% surge in the same segment, highlighting the gap in AI server adoption. 

On the other hand, client and gaming revenue delivered a standout performance, climbing nearly 70% YoY as demand surged for Ryzen desktop and laptop CPUs along with Radeon graphics cards. This segment benefited from a recovery in the broader PC market and new product launches. 

Meanwhile, embedded revenues declined 4%, reflecting softer demand from industrial and auto sectors amid ongoing macro uncertainty and inventory adjustments.

Why is AMD Stock Falling?

AMD stock fell more than 6% in opening trade on August 6th. The fall was anticipated since the stock was trading more than 5% down in pre-market trade, Google Finance data showed. Here’s why the stock fell:

• Chip Export Restrictions: U.S. curbs on MI308 exports caused AMD to delay shipments to China, leading to $800M in inventory- and margin-related hits.
• Margins Under Pressure: Operating margin narrowed, and gross margin fell to 40%, down from 49% a year ago.
• AI Expectations vs Reality: While AMD forecasts strong demand for MI350 chips, analysts noted the current data center growth is underwhelming compared to competitors.
• Valuation Concerns: High stock multiples and uncertainty around China limits weighed on enthusiasm.

What Is Driving AMD’s Growth Despite Setbacks?

• Client & Gaming Boom: Consumer CPU sales set a record at $2.5B, up 67%, and Radeon GPU and semi‑custom revenue reached $1.1B, up 73% YoY.
• Strong Operating Cash Flow: AMD generated $1.18B, providing ample fuel for R&D and possible buybacks.
• AI Innovation: New MI350 accelerators entered production, and AMD is forging partnerships with OpenAI, Meta, Microsoft and Oracle.
• Strategic Wins: Sale of ZT Systems to Sanmina is expected to close in 2025, generating $3B, reducing AMD’s manufacturing exposure.

AMD Q3 Guidance: Confidence Despite Headwinds

For the third quarter of FY25, AMD expects revenue of around $8.7 billion, plus or minus $300 million. That would be a 28% increase compared to last year and about 13% higher than the previous quarter. The company also expects its gross margin to improve to around 54%. This forecast assumes that there will be no revenue from its MI308 AI chips going to China, due to ongoing licensing delays related to US export restrictions.

Even without the China sales, AMD’s guidance came in higher than most analysts were predicting, which shows strong confidence in its AI, data center, and processor businesses. However, some investors are cautious. There are still big uncertainties, like whether export approvals will come through and how intense the competition will get in the AI chip space. While the company seems optimistic, these risks could still affect actual performance in the months ahead.

CEO Lisa Su emphasized that despite export control issues AMD achieved 32% revenue growth and record free cash flow. The company continues to ramp AI infrastructure with MI350 accelerators and deepening EPYC share gains in hyperscale markets. CFO Jean Hu praised disciplined execution.

AMD vs Nvidia, Other Peers

Source: Q2 Earnings Reports of Intel, AMD, TSMC and Nvidia

Nvidia’s runaway AI and data-center growth left AMD trailing in segment momentum, even though AMD’s 32% growth beats Intel and Qualcomm. Nvidia’s gross margin remains far higher at 75%.

What Investors Should Watch Next for AMD?

• China Export License Updates: Any changes in US policy or licensing decisions related to MI308 shipments to China could materially impact AMD's revenue and margins.
• MI350 and MI400 Ramp-Up: The pace and scale of adoption for AMD’s next-gen AI accelerators will be critical, especially as competition from Nvidia intensifies.
• Data Center Share Gains: While AMD posted solid server chip growth, Nvidia still leads the AI server race. Watch for signs of AMD gaining share in large-scale cloud and enterprise deployments.
• Gross Margin Recovery: Investors should monitor whether AMD can hit its 54 % margin target in Q3 and sustain it amid pricing pressure and component costs.
• Q3 Execution vs Guidance: AMD’s Q3 forecast is strong. How actual performance compares to this will be key for market sentiment in the second half.
• Partnership Developments: Watch for deeper integrations or new deals with hyperscalers like Microsoft, Meta, Oracle, and OpenAI, especially tied to AMD’s AI roadmap.
• Competitive Response: Nvidia and Intel’s upcoming product launches could reshape the dynamics in GPUs and CPUs. How AMD responds will be worth tracking closely.

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