Advanced Micro Devices, Inc. (NASDAQ: AMD)

AMD delivered outstanding first quarter results with revenue increasing 36% year-over-year to $7.4 billion, significantly exceeding analyst expectations of $7.13 billion. This marked the fourth consecutive quarter of accelerating year-over-year growth, demonstrating AMD’s strong execution and increasing market share in key segments. Revenue was down slightly from the $7.66 billion reported in Q4 2024, reflecting typical seasonal patterns.

Gross margin improved to 50% on a GAAP basis, up from 47% in Q1 2024. On a non-GAAP basis, gross margin reached 54%, up from 52% in the prior year period. This margin expansion reflects a favorable shift in product mix toward higher-margin data center products, particularly AI accelerators and EPYC server processors, as well as operational efficiencies gained as the business scales.

Operating income showed dramatic improvement, reaching $806 million compared to just $36 million in Q1 2024, representing a 2,139% increase. On a non-GAAP basis, operating income was $1.8 billion, up significantly from $1.1 billion in the prior year period. This substantial operating leverage demonstrates AMD’s improved operational efficiency and the benefits of its strategic focus on high-growth, high-margin market segments.

Net income grew to $709 million, a 476% increase from $123 million in Q1 2024. Non-GAAP net income reached $1.6 billion, up from $1.0 billion in the prior year. Diluted earnings per share (EPS) was $0.44, up from $0.07 in Q1 2024, and non-GAAP diluted EPS was $0.96, exceeding analyst expectations of $0.94 and up from $0.62 in the prior year period.

The company’s strong financial performance was driven by robust execution across its portfolio, with particular strength in the Data Center segment where both CPU and GPU products showed significant growth. Client segment revenue also showed impressive growth, benefiting from the continued ramp of Ryzen processors and improved PC market conditions. AMD’s strategic focus on data center and AI applications is clearly yielding results, with significant growth in these high-value markets contributing to both top-line growth and margin expansion.

Data Center segment was a standout performer, with revenue increasing approximately 55% year-over-year to $3.63 billion, driven by strong adoption of EPYC processors and increasing shipments of MI300 AI accelerators. Data center GPUs showed particularly strong growth as cloud service providers and enterprise customers continued to build out AI infrastructure. AMD is seeing expanding market share in traditional server workloads while simultaneously capturing growth in the rapidly expanding AI acceleration market. The segment showed sequential growth of approximately 8% from Q4 2024.

Client segment delivered impressive growth with revenue up approximately 80% year-over-year, benefiting from the strong market reception of Ryzen processors and an improving PC market. While down sequentially from Q4 2024 due to typical seasonal patterns, the year-over-year comparison highlights AMD’s strong competitive position in the client processor market. The company continues to gain market share in premium consumer and commercial PC segments where its performance and efficiency advantages are most valued.

Gaming segment faced challenges with revenue declining approximately 25% year-over-year. This decline was primarily driven by lower semi-custom product sales as game console lifecycles mature. GPU revenue within the segment showed some resilience but faces a competitive market environment. AMD continues to focus on delivering compelling products for gamers across different price points while managing the natural cyclicality of the console business.

Embedded segment revenue decreased approximately 15% year-over-year as customers worked through inventory corrections and certain end markets experienced cyclical softness. Despite near-term challenges, AMD remains committed to this business for its diversification benefits and sees opportunities for growth as market conditions normalize. The company continues to focus on expanding its footprint in key embedded markets including communications, industrial, and automotive applications.

Overall, AMD’s segment performance highlights the company’s successful diversification strategy, with strength in Data Center and Client segments more than offsetting challenges in Gaming and Embedded segments. This balanced portfolio approach provides resilience against market fluctuations while allowing the company to capitalize on significant growth opportunities in AI and high-performance computing.

AMD’s AI strategy continued to gain momentum in Q1 2025, driving significant growth in the Data Center segment and positioning the company as an increasingly important player in the AI ecosystem:

Key AI Initiatives

• MI300 Ramp: MI300 AI accelerator shipments showed strong growth, contributing significantly to the Data Center segment’s 55% year-over-year revenue increase
• Software Ecosystem: Continued investment in ROCm software platform to enhance developer experience and optimize AI workload performance
• Customer Adoption: Expanding deployments at major cloud service providers and enterprise customers
• Market Share: Analysts project AMD to capture a mid-single-digit share of the AI accelerator market in 2025
• Future Products: MI350 GPU expected to launch in mid-2025, representing a potential catalyst for growth in the second half of the year

The data center business continues to be a primary growth driver for AMD, with both CPU and GPU products showing strong momentum. EPYC processors have established AMD as a credible alternative in traditional server workloads, while MI300 accelerators are opening new opportunities in the rapidly growing AI infrastructure market.

Management emphasized that despite regulatory challenges related to China export restrictions, the underlying demand for AMD’s AI solutions remains robust. The company continues to work closely with customers to ensure deployment success while navigating the complex regulatory landscape.

While the company faces strong competition in the AI accelerator market, AMD’s differentiated approach focusing on heterogeneous computing architecture (combining CPU and GPU capabilities) is resonating with certain customers and workloads. The upcoming MI350 GPU expected in mid-2025 will represent the next evolution of AMD’s AI hardware portfolio and is anticipated to deliver significant performance improvements for AI training and inference workloads.

AMD’s strategy of offering a complete AI solution stack—from hardware to software frameworks—positions the company well for sustained growth in the data center and AI markets. The company continues to make strategic investments to enhance its competitive position while maintaining a balanced approach to capital allocation.

AMD’s profitability metrics showed significant improvement in Q1 2025, reflecting the company’s successful execution of its high-margin growth strategy:

• Gross Margin: GAAP gross margin of 50%, up from 47% in Q1 2024; non-GAAP gross margin of 54%, up from 52% in the prior year period
• Operating Margin: GAAP operating margin improved to 10.9% from 0.7% in Q1 2024; non-GAAP operating margin of 24.3%, up from 20.0% in the prior year
• Net Income Margin: GAAP net income margin of 9.6%, up from 2.2% in Q1 2024; non-GAAP net income margin of 21.6%, up from 18.2% in the prior year
• Earnings Per Share: GAAP diluted EPS of $0.44, up from $0.07 in Q1 2024; non-GAAP diluted EPS of $0.96, up from $0.62 in the prior year

The significant improvement in profitability was driven by several factors. First, the favorable shift in product mix toward higher-margin data center products, particularly AI accelerators and EPYC server processors, contributed to gross margin expansion. Second, the overall scale of the business has increased, allowing for better absorption of fixed costs. Third, AMD continues to benefit from operational efficiencies and cost optimization initiatives implemented across the organization.

Operating expenses (OpEx) were well-managed, with GAAP OpEx representing 39.1% of revenue in Q1 2025, down from 46.3% in Q1 2024. On a non-GAAP basis, OpEx was 29.7% of revenue, compared to 32.0% in the prior year period. This demonstrates the company’s ability to scale revenue faster than expenses while continuing to invest in strategic growth initiatives.

The company’s improved profitability has resulted in stronger cash flow generation, providing additional flexibility for investments in R&D, strategic acquisitions, and potential capital returns to shareholders. AMD continues to maintain a balanced approach to capital allocation, prioritizing investments that enhance long-term competitive positioning while maintaining financial discipline.

Looking ahead, management expects continued margin improvement as the business grows and the mix continues to shift toward higher-margin products. However, the company also noted potential near-term headwinds related to China export restrictions that could temporarily impact margins in certain segments. Despite these challenges, AMD remains confident in its ability to deliver long-term margin expansion as it executes its strategic roadmap.

AMD provided the following guidance for Q2 2025 and insights on the full-year outlook:

• Q2 2025 revenue expected to exceed consensus estimates, demonstrating continued momentum across key businesses
• Data center segment expected to show continued growth from expanding AI accelerator shipments and EPYC CPU adoption
• Client segment anticipated to maintain strong year-over-year growth while showing typical seasonal patterns
• Gaming segment outlook remains cautious due to console lifecycle dynamics
• Embedded segment expected to show stabilization with gradual recovery as inventory corrections complete
• Non-GAAP gross margin expected to remain in the mid-50% range, reflecting favorable product mix

Despite current challenges related to export restrictions affecting sales to China, management expressed confidence in the company’s ability to deliver strong growth in 2025. The regulatory impact has been factored into the outlook, with approximately $1.4 billion in potential impacts through year-end ($800 million already accounted for in Q2 projections).

Key growth drivers for the remainder of 2025 include:

• Continued ramp of MI300 AI accelerators and expanding customer deployments
• Anticipated launch of MI350 GPU in mid-2025, potentially accelerating growth in the second half of the year
• Sustained momentum in EPYC server processor adoption across cloud, enterprise, and supercomputing applications
• Client processor strength driven by Ryzen portfolio and improving PC market dynamics
• New product introductions across the portfolio to enhance competitive positioning

Management reiterated its commitment to balancing growth investments with operational discipline to deliver improved financial results. While acknowledging the dynamic macro and regulatory environment, AMD expressed confidence in its differentiated product portfolio and consistent execution, which position the company well for strong growth in 2025.

Analysts project that AMD could capture a mid-single-digit share of the AI accelerator market in 2025, with AI GPU revenue estimates ranging from $7 billion to $9 billion. This represents a significant opportunity given the market’s projected size of hundreds of billions of dollars, though these estimates have been revised downward from previous forecasts exceeding $10 billion due to regulatory headwinds.