ADVANCED MICRO DEVICES INC Q3 2025 earnings call

Thank you and welcome to AMD Third Quarter 2025 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 opportunity 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 the slides posted on our website. Participants in today's conference call are Dr. Lisa Su, our Chair and CEO, and Jean Hu, our Executive Vice President, CFO, and Treasurer. This is a live call and will be replayed via webcast on our website.

Before we begin the call, I would like to note that Dr. Lisa Su, along with members of AMD's executive team, will present our long-term financial strategy at our Financial Analyst Day next Tuesday, November 11th, in New York. Dr. Lisa Su will present at the UBS Global Technology and AI Conference on Wednesday, December 3rd. And finally, Jean Hu will present at the 23rd Annual Barclays Global Technology Conference on Wednesday, December 10th. Today's discussion contains forward-looking statements based on our current beliefs, assumptions, and expectations, speak only as of today, and as such involve risks and uncertainties that could cause results to differ materially from our current expectations. Please refer to the cautionary statement in our press release for more information on these factors that could cause actual results to differ materially. And with that, I will hand the call over to Lisa.

Thank you, Matt, and good afternoon to all those listening today. We delivered an outstanding quarter with record revenue and profitability reflecting broad-based demand across our data center AI, server, and PC businesses. Revenue grew 36% year-over-year to $9.2 billion. Net income rose 31% and free cash flow more than tripled, led by record EPYC, Ryzen, and Instinct processor sales. Our record third-quarter performance marks a clear step up in our growth trajectory as a combination of our expanding compute franchise and rapidly scaling data center AI business drives significant revenue and earnings growth. Turning to our segments, data center segment revenue increased 22% year-over-year to a record $4.3 billion, led by the ramp of our Instinct MI350 series GPUs and server share gains.

Server CPU revenue reached an all-time high as adoption of 5th Gen EPYC Turin processors accelerated rapidly, accounting for nearly half of overall EPYC revenue in the quarter. Sales of our prior-generation EPYC processors were also very robust in the quarter, reflecting their strong competitive positioning across a wide range of workloads. In cloud, we had record sales as hyperscalers expanded EPYC CPU deployments to power both their own first-party services and public cloud offerings. Hyperscalers launched more than 160 EPYC-powered instances in the quarter, including new Turin offerings from Google, Microsoft Azure, Alibaba, and others that deliver unmatched performance and price performance across a wide range of workloads. There are now more than 1,350 public EPYC cloud instances available globally, a nearly 50% increase from a year ago.

Adoption of EPYC in the cloud by large businesses more than tripled year-over-year, as our on-prem share gains are driving increased demand from enterprise customers for AMD cloud instances to support hybrid compute. We expect cloud demand to remain very strong as hyperscalers are significantly increasing their general-purpose compute capacity as they scale their AI workloads. Many customers are now planning substantially larger CPU buildouts over the coming quarters to support increased demands from AI, serving as a powerful new catalyst for our server business. Turning to enterprise adoption, EPYC server sell-through increased sharply year-over-year and sequentially, reflecting accelerating enterprise adoption. More than 170 5th Gen EPYC platforms are in market from HPE, Dell, Lenovo, Supermicro, and others, our broadest portfolio to date, with solutions optimized for virtually every enterprise workload.

We close large new wins in the quarter with leading Fortune 500 technology, telecom, financial services, retail, streaming, social, and automotive companies as we expand our footprint across major verticals. The performance and TCO advantages of our EPYC portfolio, combined with our increased go-to-market investments and the expanded breadth of offerings from the leading server and solutions providers, position us well for continued enterprise share gains. Looking ahead, we remain on track to launch our next-generation 2 nm Venice EPYC processors in 2026. Venice silicon is in the labs and performing very well, delivering substantial gains in performance, efficiency, and compute density. Customer pull and engagement for Venice are the strongest we have seen, reflecting our competitive positioning and the growing demand for more data center compute.

Multiple cloud and OEM partners have already brought their first Venice platforms online, setting the stage for broad solution availability and cloud deployments at launch. Turning to data center AI, our Instinct GPU business continues to accelerate. Revenue grew year-over-year, driven by the sharp ramp of MI350 series GPU sales and broader MI300 series deployments. Multiple MI350 series deployments are underway with large cloud and AI providers, with additional large-scale rollouts on track to ramp over the coming quarters. Oracle became the first hyperscaler to publicly offer MI355X instances, delivering significantly higher performance for real-time inference and multimodal training workloads on OCI ZettaScale Supercluster. Neocloud providers Crusoe, DigitalOcean, TensorWave, Vultr, and others also began ramping availability of their MI350 series public cloud offerings in the quarter. MI300 series GPU deployments with AI developers also broadened in the quarter.

IBM and Zyphra will train multiple generations of future multimodal models on a large-scale MI300X cluster, and Cohere is now using MI300X at OCI to train its command family of models. For inference, a number of new partners, including Character AI and Luma AI, are now running production workloads on MI300 series, demonstrating the performance and TCO advantages of our architecture for real-time AI applications. We also made significant progress on the software front in the quarter. We launched ROCm 7, our most advanced and feature-rich release to date, delivering up to 4.6x higher inference and 3x higher training performance compared to ROCm 6. ROCm 7 also introduces seamless distributed inference, enhanced code portability across hardware, and new enterprise tools that simplify the deployment and management of Instinct solutions. Importantly, our open software strategy is resonating with developers.

Hugging Face, vLLM, SGLang, and others contributed directly to ROCm 7, as we make ROCm the open platform for AI development at scale. Looking ahead, our data center AI business is entering its next phase of growth, with customer momentum building rapidly ahead of the launch of our next-gen MI400 series accelerators and "Helios" rack scale solutions in 2026. The MI400 series combines a new compute engine with industry-leading memory capacity and advanced networking capabilities to deliver a major leap in performance for the most demanding AI training and inference workloads. The MI400 series brings together our Silicon software and systems expertise to power "Helios", our rack scale AI platform. Designed to redefine performance and efficiency at data center scale.

"Helios" integrates our Instinct MI400 series GPUs, Venice EPYC CPUs, and Pensando NICs in a double-wide rack solution optimized for the performance, power, cooling, and serviceability required for the next generation of AI infrastructure and supports Meta's new open rack wide standard. Development of both our MI400 series GPUs and "Helios" rack is progressing rapidly, supported by deep technical engagements across a growing set of hyperscalers, AI companies, and OEM and ODM partners to enable large-scale deployments next year. The ZT Systems team we acquired last year is playing a critical role in "Helios" development, leveraging their decades of experience building infrastructure for the world's largest cloud providers to ensure customers can deploy and scale "Helios" quickly within their environments. In addition, last week we completed the sale of the ZT manufacturing business to Sanmina and entered a strategic partnership that makes them our lead manufacturing partner for "Helios".

This collaboration will accelerate large customer deployments of our rack scale AI solutions. On the customer front, we announced a comprehensive multi-year agreement with OpenAI to deploy 6 GW of Instinct GPUs, with the first gigawatt of MI450 series accelerators scheduled to start coming online in the second half of 2026. The partnership establishes AMD as a core compute provider for OpenAI and underscores the strength of our hardware, software, and full-stack solutions strategy. Moving forward, AMD and OpenAI will work even more closely on future hardware, software, networking, and system-level roadmaps and technologies. OpenAI's decision to use AMD Instinct platforms for its most sophisticated and complex AI workloads sends a clear signal that our Instinct GPUs and ROCm open software stack deliver the performance and TCO required for the most demanding deployments.

We expect this partnership will significantly accelerate our data center AI business, with the potential to generate well over $100 billion in revenue over the next few years. Oracle announced they will also be a lead launch partner for the MI450 series, deploying tens of thousands of MI450 GPUs across Oracle Cloud Infrastructure beginning in 2026 and expanding through 2027 and beyond. Our Instinct platforms are also gaining traction with sovereign AI and national supercomputing programs. In the U.A.E., Cisco and G42 will deploy a large-scale AI cluster powered by Instinct MI350X GPUs to support the nation's most advanced AI workloads. In the U.S., we are partnering with the Department of Energy and Oak Ridge National Labs to build Lux AI, the first AI factory dedicated to scientific discovery, together with our industrial partners OCI and HPE.

Powered by our Instinct MI350 series GPUs, EPYC CPUs, and Pensando networking, Lux AI will provide a secure open platform for large-scale training and distributed inference when it comes online in early 2026. The U.S. Department of Energy also selected our upcoming MI430X GPUs and EPYC Venice CPUs to power Discovery, the next flagship supercomputer at Oak Ridge, designed to set the standard for AI-driven scientific computing and extend U.S. high-performance computing leadership. Our MI430X GPUs are designed specifically to power nation-scale AI and supercomputing programs, extending our leadership powering the world's most powerful computers to enable the next generation of scientific breakthroughs. In summary, our AI business is entering a new phase of growth and is on a clear trajectory towards tens of billions in annual revenue in 2027, driven by our leadership, rack scale solutions, expanding customer adoption, and an increasing number of large-scale global deployments.

I look forward to providing more details on our data center AI growth plans at our Financial Analyst Day next week. In client and gaming, segment revenue increased 73% year-over-year to $4 billion. Our PC processor business is performing exceptionally well, with record quarterly sales as the strong demand environment and breadth of our leadership Ryzen portfolio accelerates growth. Desktop CPU sales reach an all-time high, with record channel sell-in and sell-out led by robust demand for our Ryzen 9000 processors, which deliver unmatched performance across gaming, productivity, and content creation applications. OEM sell-through of Ryzen-powered notebooks also increased sharply in the quarter, reflecting sustained end-customer pull for premium gaming and commercial AMD PCs.

Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our financial results and then provide our outlook for the fourth quarter of fiscal 2025. We're pleased with our strong third-quarter financial results. We delivered a record revenue of $9.2 billion, up 36% year-over-year, exceeding the high end of our guidance, reflecting strong momentum across our business. Our third-quarter results do not include any revenue from shipment of the MI308 GPU products to China. Revenue increased 20% sequentially, driven by strong growth in the data center and client and gaming segment, and modest growth in the embedded segment.

Gross margin was 54%, up 40 basis points year-over-year, primarily driven by product mix. Operating expenses were approximately $2.8 billion, an increase of 42% year-over-year as we continue to invest aggressively in R&D to capitalize on significant AI opportunities and go-to-market activities for revenue growth. Operating income was $2.2 billion, representing a 24% operating margin. Taxes, interest expense, and other totaled $273 million. For the third quarter of 2025, diluted earnings per share were $1.20 compared to $0.92 a year ago, an increase of 30% year-over-year. Now turning to our reportable segments, starting with the data center. Data center segment revenue was a record of $4.3 billion, up 22% year-over-year, primarily driven by the strong demand for 5th Generation EPYC processors and Instinct MI350 series GPUs. On a sequential basis, data center revenue increased 34%.

Primarily driven by strong ramp of our AMD Instinct MI350 series GPUs. The data center segment operating income was $1.1 billion, or 25% of revenue, compared to $1 billion a year ago, or 29% of revenue, driven by higher revenue, partially offset by higher R&D investment to capitalize on significant AI opportunities. Client and gaming segment revenue was a record of $4 billion, up 73% year-over-year and 12% sequentially, driven by strong demand for the latest generation of client and graphics processors and stronger sales of console gaming products. In the client business, revenue was a record $2.8 billion, up 46% year-over-year and 10% sequentially, driven by record sales of our Ryzen processors and the richer product mix. Gaming revenue rose to $1.3 billion, up 181% year-over-year and 16% sequentially, reflecting higher semi-custom revenue and strong demand for our Radeon GPUs.

Client and gaming segment operating income was $867 million, or 21% of revenue, compared to $288 million, or 12% a year ago, driven by higher revenue, partially offset by increase in go-to-market investment to support our revenue growth. Embedded segment revenue was $857 million, down 8% year-over-year. Embedded was up 4% sequentially as we saw certain end-market demand strengthen. Embedded segment operating income was $283 million, or 33% of revenue, compared to $372 million, or 40% a year ago. The decline in operating income was primarily due to lower revenue and end-market mix. Before I review the balance sheet and the cash flow, as a reminder, we closed the sale of ZT Systems manufacturing business to Sanmina last week. The third-quarter financial results of the ZT manufacturing business are reported separately in our financial statements as discontinued operations and are excluded from our non-GAAP financials.

Turning to the balance sheet and the cash flow, during the quarter, we generated $1.8 billion in cash from operating activities of continuing operations, and the free cash flow was a record of $1.5 billion. We returned $89 million to shareholders through share repurchases, resulting in $1.3 billion in share repurchases for the first three quarters of 2025. Exiting the quarter, we have $9.4 billion authorization remaining and our share repurchase program. At the end of the quarter, cash, cash equivalent, and short-term investment was $7.2 billion. Our total debt was $3.2 billion. Now turning to our fourth quarter 2025 outlook, please note that our fourth quarter outlook does not include any revenue from AMD Instinct MI308 shipment to China. For the fourth quarter of 2025, we expect revenue to be approximately $9.6 billion, ±$300 million.

The midpoint of our guidance represents approximately 25% year-over-year revenue growth, driven by strong double-digit growth in our data center and client and gaming segment, and a return to growth in our embedded segment. Sequentially, we expect revenue to grow by approximately 4%. Driven by double-digit growth in the data center segment, with strong growth in server and continued ramp of our MI350 series GPUs. A decline in our client and gaming segment, with client revenue increasing and gaming revenue down strong double digits. And double-digit growth in our embedded segment. In addition, we expect fourth-quarter non-GAAP gross margin to be approximately 54.5%. And we expect non-GAAP operating expenses to be approximately $2.8 billion. We expect net interest and other expenses to be gain of approximately $37 million. We expect our non-GAAP effective tax rate to be 13%. And diluted share count is expected to be approximately 1.65 billion shares.

In closing, we executed very well, delivering record revenue for the first three quarters of the year. The strategic investment we are making positions us well to capitalize on expanding AI opportunities across all our end markets, driving sustainable long-term revenue growth and earnings expansion for compelling shareholder value creation. With that, I'll turn it back to Matt for the Q&A session.

Thank you very much, Jean. John, we can go ahead and poll the audience for questions now.