AMD delivered record second-quarter 2025 revenue of $7.7 billion, up 32% year over year and 3% sequentially, exceeding the midpoint of guidance as record EPYC and Ryzen sales and higher semi-custom shipments more than offset an $800 million inventory write-down tied to U.S. export controls that effectively eliminated MI-308 GPU sales to China. That charge cut GAAP gross margin to 43% (versus 53% a year ago) and reduced diluted EPS to $0.48 from $0.69, though excluding it non-GAAP gross margin was about 54% — the sixth consecutive quarter of year-over-year expansion. Client and gaming was the standout, up 69% to $3.6 billion on record client revenue of $2.5 billion (+67%) and gaming of $1.1 billion (+73%), while data center grew 14% year over year to $3.2 billion on EPYC strength and a 33rd straight quarter of server share gains but swung to a $155 million operating loss and fell 12% sequentially because of the export-control hit; embedded declined 4% to $824 million on mixed demand. On AI, AMD began MI-350 series volume production ahead of schedule in June with faster-than-expected adoption, positioned it as competitive with NVIDIA's B200/GB200 at up to 40% more tokens per dollar, and pointed to Oracle's 27,000-plus node cluster and ROCm 7 (3x performance gains) as proof points, while the MI-400 series and Helios rack-scale platform remain on track for a 2026 launch with a 'tens of billions' aspiration. The company closed the ZT Systems acquisition early in the quarter and agreed to sell its U.S. manufacturing arm to Sanmina for $3 billion, generated record free cash flow of $1.2 billion, and expanded its buyback authorization by $6 billion (leaving $9.5 billion remaining). For the third quarter, AMD guided revenue to approximately $8.7 billion (plus or minus $300 million, ~28% year-over-year growth) driven by the MI-350 ramp, with non-GAAP gross margin around 54% and no MI-308 China revenue assumed, as license applications remain under Commerce Department review. Management expects Instinct revenue to still grow year over year in Q3 on the MI-350 ramp and characterized sovereign AI — including a multi-billion-dollar HUMAIN collaboration in Saudi Arabia — as an additive 2026 opportunity.
Thank you, and welcome to AMD's 2025 second quarter financial results conference call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had the chance to review these materials, they can be found on the Investor Relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call. The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website. Participants in today's conference call are Dr. Lisa Su, our Chair and Chief Executive Officer, and Jean Hu, our Executive Vice President, Chief Financial Officer, and Treasurer. This is a live call and will be replayed via webcast on our website.
Before we begin, I would like to note that Jean Hu, Executive Vice President, Chief Financial Officer, and Treasurer will present at Cities 2025 Global TMT Conference on Wednesday, September 3, and Forrest Norrod, Executive Vice President and General Manager of Data Center Solutions Business Unit, will present at the Goldman Sachs CommuniCopia and Technology Conference on Monday, September 8. Today's discussion contains forward-looking statements based on our current beliefs, assumptions, and expectations, speaks only as of today, and as such, involves risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to the cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa.
Thank you, Matt, and good afternoon to all those listening today. We delivered very strong second quarter results, with revenue exceeding the midpoint of guidance as higher EPYC and Ryzen processor sales more than offset headwinds from export controls that impacted Instinct sales. We set records for both EPYC and Ryzen CPU sales, reflecting the broad-based demand for our differentiated high-performance data center, PC, and embedded processors. Second quarter revenue increased 32% year over year to a record $7.7 billion, and we delivered over $1 billion in free cash flow. Excluding the $800 million inventory write-down related to data center AI export controls, gross margin was 54%, marking our sixth consecutive quarter of year-over-year margin expansion led by a richer product mix. Turning to the segments, data center segment revenue increased 14% year over year to $3.2 billion.
We saw robust demand across our EPYC portfolio to power cloud and enterprise workloads, and increasingly for emerging AI use cases. In particular, adoption of agentic AI is creating additional demand for general-purpose compute infrastructure, as customers quickly realize that each token generated by a GPU triggers multiple CPU-intensive tasks. Against this backdrop, fifth-gen EPYC turn shipments ramped significantly, and we had sustained demand for our prior generation EPYC processors. As a result, we set records for both cloud and enterprise CPU sales and delivered our 33rd consecutive quarter of year-over-year share gains. In cloud, adoption expanded with the largest hyperscalers as they deployed EPYC to power more of their mission-critical infrastructure, services, and public cloud products.
More than 100 new AMD-powered cloud instances launched in the quarter, including multiple turn instances from Google and Oracle Cloud that deliver up to twice the performance of our previous generation, which were already the industry's highest performing offerings. There are now nearly 1,200 EPYC cloud instances available globally as providers continue expanding both the breadth and regional availability of their AMD offerings. This continued expansion is accelerating enterprise adoption of EPYC in the cloud, with deployments growing significantly from the prior quarter as we close large wins with dozens of large aerospace, streaming, financial services, retail, and energy companies. EPYC adoption also grew with telecom customers as providers modernize their infrastructure for next-generation networks. For example, KDDI announced plans to deploy EPYC processors to power its 5G virtualized network, and Nokia selected EPYC for its cloud platform used by service providers to build, deploy, and manage core network functions.
Turning to enterprise on-prem adoption, HPE, Dell, Lenovo, and Super Micro launched 28 new turn platforms in the quarter that deliver leadership performance, efficiency, and TCO across a wide range of enterprise workloads. EPYC enterprise deployments grew significantly from the prior quarter, supported by new wins with large technology, automotive, manufacturing, financial services, and public sector customers. To extend our momentum with SMB and hosted IT service customers, we launched the EPYC 4005 series that combined enterprise-grade performance and features in cost-optimized platforms purpose-built for smaller-scale deployments. Turning to HPC, AMD now powers more than one-third of the world's fastest supercomputers, including El Capitan and Frontier, which retain the number one and number two spots on the latest top 500 list. We also power 12 of the top 20 systems on the Green 500, highlighting the performance per watt advantages of EPYC and Instinct for large-scale deployments.
Looking ahead, we remain bullish on our service CPU business, driven by durable tailwinds, including growing demand for cloud and on-prem compute, sustained share gains, and the growing investments in general-purpose infrastructure required to enable AI. Turning to our data center AI business, revenue declined year over year as U.S. export restrictions effectively eliminated MI-308 sales to China, and we began transitioning to our next-generation MI-350 series accelerators. We made solid progress with MI-300 and MI-325 in the quarter, closing new wins and expanding adoption with tier-one customers, next-generation AI cloud providers, and end users. Today, seven of the top 10 model builders and AI companies use Instinct, underscoring the performance and TCO advantages of our data center AI solutions. We launched our Instinct MI-350 series with industry-leading memory bandwidth and capacity and broad adoption across hyperscalers, AI companies, and OEMs.
From a competitive standpoint, MI-350 series matches or exceeds B200 in critical training and inference workloads and delivers comparable performance to GB200 for key workloads at significantly lower cost and complexity. For at-scale inferencing, MI-350 series delivers up to 40% more tokens per dollar, providing leadership performance and clear TCO advantages. With the MI-350 series, we're also expanding our system-level capabilities to support deployments powered by AMD CPUs, GPUs, and NICs. As one example, Oracle is building a 27,000-plus node AI cluster, combining MI-350 series accelerators, fifth-gen EPYC turn CPUs, and Polara 400 Smart NICs. We began volume production of the MI-350 series ahead of schedule in June and expect a steep production ramp in the second half of the year to support large-scale production deployments with multiple customers.
Our sovereign AI engagements accelerated in the quarter as governments around the world adopt AMD technology to build secure AI infrastructure and advance their economies. As one example, we announced a multi-billion dollar collaboration with a leading company to build AI infrastructure powered entirely on AMD CPUs, GPUs, and software. Initial deployments are underway in key regions, with quarterly expansions planned over the coming years. In addition, we have more than 40 active engagements globally and see significant opportunities to power an increasingly larger portion of national computing centers and sovereign AI initiatives. On the AI software front, we made significant progress this quarter, increasing the performance, improving the usability, and expanding the adoption of ROCm.
We announced ROCm7 with major upgrades across every layer of the stack, delivering more than 3x higher inferencing and training performance compared to our prior generation and adding support for large-scale training, distributed inference, and lower precision data types. To deepen developer engagement, we introduced nightly ROCm builds and expanded access to Instinct compute infrastructure, including launching our first developer cloud that provides pre-configured containers for instant access to AMD GPUs. We also expanded native support for ROCm across key frameworks, including vLLM and SGLang, enabling Frontier models like Llama 4, Gemma 3, and DeepSeek R1 to launch with day zero AMD support. To accelerate enterprise adoption, we introduced ROCm Enterprise AI, a full-stack platform that integrates seamlessly with existing IT infrastructure and includes everything needed for an enterprise to deploy, manage, and scale AI across their business. Looking ahead, the development of our next-generation MI-400 series is progressing rapidly.
These are the most advanced GPUs we have ever built, with up to 40 petaflops of FP4 AI performance and 50% more memory, memory bandwidth, and scale-out throughput than the competition. With the MI-400 series, we're bringing together everything we've learned across silicon, software, and systems to deliver Helios, a full-stack rack-scale AI platform. Helios is purpose-built for the most demanding AI workloads, with each rack connecting up to 72 GPUs that can operate as a single massive AI accelerator. Helios is expected to deliver up to a 10x generational performance increase for the most advanced Frontier models, and we believe it will be the highest performance AI system in the world when it launches. MI-400 series development is progressing well towards our planned launch in 2026, with significant interest in large-scale deployments from multiple high-profile customers.
To accelerate our development, we have invested significantly to expand our AI software and hardware capabilities, both organically and inorganically, with a number of acquisitions and strategic investments. We strengthened our software stack last quarter with the addition of the BREEAM and Lemony teams, building on our acquisitions of Node.ai, MIPSology, and SiloAI. On the hardware side, we added a world-class rack and data center scale design team in the second quarter with our acquisition of ZT Systems. The ZT team has integrated seamlessly, and they are actively engaging with multiple customers to accelerate deployments of our Helios solutions at scale. We also announced last quarter that Sanmina intends to acquire ZT Systems' U.S.-based manufacturing business, becoming our lead partner for AI rack manufacturing.
Turning to the AI regulatory environment, earlier this quarter, we were notified by the Department of Commerce that it is moving forward with the review of our license applications to export Instinct MI-308 GPU to China. We appreciate the focus the Trump administration is placing on assuring that U.S. technology remains central to global AI infrastructure, and we expect to resume Instinct MI-308 shipments as licenses are approved, subject to end customer demand and supply chain readiness. As our licenses are still under review, we are not including any Instinct MI-308 revenue in our third quarter guidance. Despite that, we expect Instinct revenue to grow year over year in the third quarter, driven by the ramp of Instinct MI-350 at multiple customers.
In client and gaming, segment revenue increased 69% year over year to $3.6 billion, driven by record client CPU sales and strong demand for our semi-custom game console SoCs and Radeon GPUs. Client revenue increased 67% year over year to $2.5 billion, led by record desktop CPU sales. Demand for our latest generation Ryzen 9000 series was strong, especially for our differentiated X3D processors. We delivered record desktop channel CPU sales as Ryzen processors consistently topped the best-selling CPU lists at major global e-tailers throughout the quarter. We also expanded our Zen 5 desktop portfolio with the launch of our latest Threadripper processors that feature up to 96 cores and deliver up to double the performance of the competition in many popular content creation and design workloads. In mobile, demand for AMD-powered notebooks was strong, with sell-out growing by a large double-digit percentage year over year.
Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our financial results and then provide our outlook for the third quarter of fiscal 2025. We are pleased with our strong second quarter financial results. We delivered record revenue of $7.7 billion, exceeding the midpoint of our guidance, up 32% year over year, reflecting strong momentum across our business. Record sales of Ryzen and EPYC processors and higher semi-custom shipments more than offset the impact of the U.S. export controls, restricting Instinct MI-308 sales to China. Revenue increased 3% sequentially due to strong growth in the client and gaming segment, partially offset by the data center revenue decrease due to export controls. Gross margin was 43%, down 10 points from 53% a year ago. The decrease was due to the $800 million inventory and related charges associated with export restrictions.
Excluding this charge, non-GAAP gross margin would have been approximately 54%. Operating expenses were approximately $2.4 billion, and the increase of 32% year over year as we continue to invest aggressively in go-to-market activities for revenue growth and in R&D to capitalize on significant future AI expansion opportunities. Operating income was $897 million, representing a 12% operating margin compared to $1.3 billion, up 22% a year ago. The decline was primarily due to the inventory and related charges. Taxes, interest expense, and other totaled $126 million. For the second quarter of 2025, diluted earnings per share were $0.48 compared to $0.69 a year ago. The inventory and related charges reduced earnings per share by approximately $0.43. Now, turning to our reportable segment, starting with the data center.
Data center segment revenue was $3.2 billion, up 14% year over year, driven by strong EPYC CPU revenue and share gains across both cloud and enterprise customers. On a sequential basis, data center revenue decreased 12% due to the impact of the export controls on Instinct MI-308 GPU. The data center segment operating loss was $155 million compared to operating income of $743 million a year ago, up 26% of revenue. The loss was primarily due to the inventory and related charges. Client and gaming segment revenue was $3.6 billion, up 69% year over year and 20% sequentially, driven by record client CPU sales and strong demand for our PC and console gaming products. In the client business, revenue was a record of $2.5 billion, up 67% year over year, driven by record sales of our Ryzen desktop CPUs and the richer product mix.
Gaming revenue rose to $1.1 billion, up 73% year over year, reflecting strong demand for our newly launched gaming GPUs and higher semi-customer revenue as inventory has now normalized and customers prepare for the holiday season. Client and gaming segment operating income was $767 million, up 21% of revenue compared to $166 million, up 8% a year ago, driven by richer client product mix and operating leverage on higher revenue. Embedded segment revenue was $824 million, down 4% year over year and flat sequentially, as embedded end market demand remains mixed. Embedded segment operating income was $275 million, up 33% of revenue compared to $345 million, up 40% a year ago. The decline in operating income was primarily due to product mix. Before I review the balance sheet and the cash flow, as a reminder, we closed the acquisition of ZT Systems early in the second quarter.
As we had announced our intent to divest the ZT manufacturing business, the financial results of the ZT manufacturing business are reported separately in our financial statement as discontinued operations and are excluded from our non-GAAP financials. Subsequently, in May, we entered into agreement withSanmina Corporation to sell the ZT manufacturing business for $3 billion in cash and stock, inclusive of contingent payment. The transaction is expected to close near the end of 2025, subject to regulatory approvals and customary closing conditions. Turning to the balance sheet and the cash flow, during the quarter, we generated $1.5 billion in cash from operating activities of continuing operations and free cash flow was a record of $1.2 billion. We returned $478 million to shareholders through share repurchase, resulting in $1.2 billion in share repurchases for the first half of 2025.
In May, our board of directors approved an additional $6 billion authorization, and at the end of the quarter we have $9.5 billion remaining in our share repurchase program. At the end of the quarter, cash, cash equivalents, and short-term investment were $5.9 billion. Our long-term debt was $3.2 billion. During the quarter, we paid down $950 million of commercial paper used to finance the ZT Systems acquisition close. Now, turning to our third quarter 2025 outlook, please note that our third quarter outlook does not include any revenue from AMD Instinct MI-308 shipment to China, as our license applications are currently under review by the U.S. government. For the third quarter of 2025, we expect revenue to be approximately $8.7 billion, plus or minus $300 million.
The midpoint of our guidance represents approximately 28% year-over-year revenue growth, driven by strong double-digit growth in our client and gaming and the data center segments. Sequentially, we expect revenue to grow by approximately 13%, driven by strong double-digit growth in the data center segment with the ramp of our AMD Instinct MI-350 series GPU products, modest growth in our client gaming segment with client revenue increasing and gaming revenue to be flattish, and our embedded segment revenue to return to growth. In addition, we expect third quarter non-GAAP gross margin to be approximately 54%, and we expect non-GAAP operating expenses to be approximately $2.55 billion. We expect net interest and other expenses to be a gain of approximately $10 million. We expect our non-GAAP effective tax rate to be 13%, and diluted share count is expected to be approximately 1.63 billion shares.
In closing, we executed very well in the first half of the year, delivering record revenue and building strong momentum for growth in the second half. The strategic investment we're making positions us to capitalize on the expanding AI opportunities across all our end markets, driving sustainable long-term revenue growth and earnings expansion for compelling value creation. With that, I'll turn it back to Matt for the Q&A session.
Operator, will you please poll the audience for questions? Thank you.