Key Points
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AMD guided for about $13 billion of third-quarter revenue, and Wall Street expects almost exactly that.
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Its new Helios AI systems began shipping in September, so the fourth-quarter outlook will show how fast the ramp is going.
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AMD is still far smaller than Nvidia in AI chips, but it doesn’t need to catch Nvidia to be a big winner.
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Advanced Micro Devices (NASDAQ:AMD) is scheduled to report third-quarter results after the market closes on Tuesday, and the stock is heading in on a shaky note. Shares fell nearly 11% on Friday and sold off further on Monday amid broader chip stock weakness, with no AMD-specific news. In all, AMD is down nearly 30% from its all-time high, reached less than a month ago.
Of course, we have no idea what AMD will report, but the headline results probably won’t be the surprise. AMD guided for revenue of about $13 billion, plus or minus $300 million, and analysts expect $13.09 billion, which would be 41.5% higher than a year ago.
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The guidance is the real story
The more important figure is likely to be AMD’s fourth-quarter guidance, and specifically how much of it comes from data center GPUs. AMD began shipping its Helios rack-scale systems, built on its MI450 chips, in September, so the third quarter won’t include a full period of its volume. However, management said on its last call that it expects the ramp to accelerate meaningfully in the fourth quarter.
The average estimate among Wall Street analysts is about $16.3 billion in fourth-quarter revenue, and Jefferies analyst Blayne Curtis expects closer to $17 billion. A forecast at or above that higher level would suggest Helios demand is turning into revenue at an impressive pace. AMD has plenty of big customers lined up, including OpenAI, Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), and Anthropic, so expectations are high.
AMD doesn’t need to catch Nvidia
To put AMD’s AI business in perspective, Nvidia (NASDAQ:NVDA) generated $89 billion of data center revenue in its most recent quarter. AMD’s entire data center segment, which includes its EPYC server processors, generated $6.7 billion in revenue. AMD isn’t going to close that gap anytime soon.
However, it doesn’t need to. AI companies want a second source of computing power so they aren’t completely dependent on one supplier, and AMD has emerged as the most credible alternative. CEO Lisa Su has said each gigawatt of AI capacity represents double-digit billions in revenue, so even a modest share of the market would be an enormous win.
Of course, there are risks to watch. For example, AI chips carry slightly lower margins than server processors, so a fast GPU ramp could weigh on gross margin. It’s also worth noting that Intel‘s (NASDAQ:INTC) warning about a shrinking PC market could also be a headwind for AMD’s client business, which grew 23% last quarter.
In short, I’m watching the guidance more than the results. If the fourth-quarter outlook shows Helios ramping up on schedule, the recent pullback could be a buying opportunity for long-term investors in an excellent AI stock.
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Matt Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
