AMD forecasts fourth-quarter revenue above estimates on strong AI chip demand

ETMarkets.com

AMD shares rose more than 6% in extended trading following the announcement. The stock has more than doubled so far this year as investors bet on the company's growing presence in the rapidly expanding AI infrastructure market, Reuters reported.

The chipmaker expects fourth-quarter revenue of approximately $17 billion, plus or minus 3%, compared with analysts' average estimate of $16.23 billion, according to data compiled by LSEG. However, AMD expects its adjusted gross margin to be around 55%, slightly below analysts' expectations of 55.27% and down from 56% in the third quarter.

The outlook reflects growing demand for processors used to train and run AI models. As AI workloads increasingly shift towards running models in real-world applications, demand for graphics processing units (GPUs) and central processing units (CPUs) has strengthened, supporting AMD's expansion in the data-centre market.

According to Reuters, AMD is benefiting from this shift in AI workloads and is gaining market share from rival Intel. Intel last week issued a weaker-than-expected quarterly revenue forecast, triggering a global selloff in semiconductor stocks.

Data-centre business drives growth

AMD's third-quarter performance highlighted the strength of its AI and data-centre operations. Revenue increased 45% year-on-year to $13.38 billion, beating analysts' expectations of $13.09 billion.

Data-centre revenue nearly doubled, rising 97% to a record $8.55 billion against estimates of $8.20 billion. Adjusted earnings came in at $2.09 per share, exceeding the consensus estimate of $1.95.

Reuters reported that AMD has accelerated its AI product launches, expanding beyond individual processors to compete with Nvidia's integrated, rack-scale computing systems.

Its flagship Helios rack, which combines the MI455X accelerator with its next-generation Venice server chips, is already in production, with a broader ramp-up expected in the fourth quarter. Initial systems are undergoing testing at Meta.

AMD strengthens partnership with Meta

AMD's relationship with Meta represents a significant opportunity for its AI chip business. In February, the company agreed to supply up to $60 billion worth of AI chips to the Facebook parent over five years.

The agreement also gives Meta the option to acquire as much as a 10% stake in AMD, Reuters reported, highlighting the strategic importance of the partnership for both companies.

Beyond semiconductors, AMD is expanding its exposure to emerging AI technologies. In September, it agreed to acquire World Labs, a startup founded by AI researcher Fei-Fei Li that is developing technology to model three-dimensional environments, in an $8.2 billion all-stock transaction, according to Reuters. The acquisition would give AMD a foothold in research related to physical AI systems.

Memory shortage poses supply challenges

Despite strong demand for AI processors, the semiconductor industry continues to face supply constraints, particularly in high-bandwidth memory (HBM), a critical component used in advanced AI chips.

According to Reuters, manufacturers are racing to expand production as demand for memory used in AI infrastructure outpaces available supply. The shortage could create challenges for chipmakers seeking to scale production to meet growing orders.

AMD's performance also remained uneven across business segments. Revenue from its client and gaming division, which includes PC processors and console chips, declined 8% to $3.72 billion in the third quarter, missing analysts' estimates of $3.79 billion.

Nevertheless, the stronger-than-expected fourth-quarter revenue forecast underscores AMD's growing opportunity in the AI infrastructure market as it seeks to narrow Nvidia's lead and capitalise on rising investment in artificial intelligence.