AMD: Has It Got the Upper Hand over Intel, and Is It Also Going to Up the Ante Against NVIDIA?

AMD (AMD.O) released its Q1 2025 financial report (ending March 2025) after U.S. stock market hours on May 7, 2025, Beijing time. The key points are as follows:

1. Overall Performance: Revenue & Profit Both Increased Year-on-Year. AMD achieved revenue of $7.44 billion in Q1 2025, a year-on-year increase of 35.9%, better than market expectations ($7.1 billion). The growth in revenue was mainly driven by the client and data center businesses. AMD reported a net profit of $710 million in Q1 2025, and after excluding amortization and related impacts, the company's core operating profit for the quarter was $1.12 billion, a year-on-year increase of 170%, with a core operating profit margin of 15.1%.

2. Business Segmentation: Strong CPU Performance, Anticipation for New GPU Products. Driven by growth in the data center and client businesses, the combined revenue from these two segments accounted for 80%.

1) Client Business Gaining Market Share: Revenue for this quarter grew to $2.29 billion, a year-on-year increase of 67.7%. Global PC market shipments increased by 5% this quarter, while the company's client business grew by over 60% year-on-year, mainly due to $AMD(AMD.US)'s continued increase in PC market share;

2) Data Center and New Products: Revenue for this quarter was $3.67 billion, a year-on-year increase of 57.2%. The growth in the data center business was mainly due to increased shipments of the company's related products (GPU and CPU), driven by capital expenditures from core cloud vendors. Specifically, the company's server-side CPU market share continued to increase, while GPU products saw a quarter-on-quarter decline, with the market eagerly anticipating the company's upcoming MI350 and MI400 products;

3) Tariff Impact: Trump also required that AMD's special supply product for China, MI308, needs to obtain a sales license before it can be sold. Similar to NVIDIA's operations, AMD indicated that approximately $800 million of inventory would be affected. According to Dolphin Research, with a gross margin of 47%, this $800 million inventory would correspond to $1.5 billion in lost sales, of which $700 million in sales would directly reflect in the second quarter as "disappeared" sales revenue.

4) AMD Performance Guidance: Expected revenue for Q2 2025 is $7.1-7.7 billion (market expectation: $7.23 billion), with the midpoint (approximately $7.4 billion) remaining basically flat quarter-on-quarter, which already includes the $700 million tariff impact.**

The company expects a non-GAAP gross margin of around 43% (market expectation: 52.6%). Excluding the inventory impairment impact from sales license restrictions, the non-GAAP gross margin would be around 54%, better than market expectations.

Dolphin Research Overall View: The financial report is overall good, looking forward to the performance of new products.

AMD's revenue and profit both grew this quarter, with the performance increase mainly driven by growth in the data center and client businesses. Among all businesses this quarter, the client business performed the best, primarily due to the continued increase in market share of the company's Ryzen processors in the PC market.

In addition, the guidance provided by the company for the next quarter is also good. The midpoint of the expected revenue guidance is $7.4 billion, roughly flat quarter-over-quarter, which already considers the impact of MI308 export restrictions (approximately $700 million impact on second-quarter revenue). Without this impact, the company's revenue for the next quarter is expected to reach $7.8-8.4 billion, a quarter-over-quarter growth of 5%-13%.

Looking at specific segments:

① Client Business: This quarter exceeded expectations and is the fastest-growing segment. Thanks to the excellent performance of the company's Ryzen processors, the company has surpassed Intel in market share in the desktop market. Even as the global PC market shows single-digit growth, the company continues to achieve double-digit high growth in the client business by "capturing" market share;

② Data Center Business: Specifically, it can be divided into GPU and CPU parts. The company's market share in the data center CPU market has increased from about 10% to over 20%, and Dolphin Research expects the company's data center CPU business to achieve positive quarter-over-quarter growth this quarter. However, the data center GPU business has seen a quarter-over-quarter decline due to the transitional period before the shipment of MI350 and M400;

Overall, the company's financial report is quite good, but attention still needs to be paid to the progress of the company's new GPU products and the impact of trade frictions and other events. The market recognizes the company's progress in the CPU market, but whether the GPU can break through still requires better subsequent products for validation.

Although the client business continues to show high growth, the company's performance in the next two quarters will still be under pressure due to the export restrictions on MI308. Currently, the company's market value is $159.8 billion, corresponding to a PE ratio of about 34 times the company's after-tax core operating profit for 2025 (assuming a revenue growth of 21%, a gross margin increase of 0.8 percentage points, and a tax rate of 15%). The expectation for the company's CPU product share increase is relatively clear, while GPU products will be directly affected by the performance of subsequent products. In addition, most laptops in the U.S. market are assembled in China, which still poses risks from tariffs and other related impacts.

From a medium to long-term perspective, the company has gradually established an advantage in the CPU market and is continuously eating into Intel's market share, which has brought significant incremental benefits to the company's performance. Compared to CPUs, the market is more focused on the company's AI GPU products, which will provide greater growth potential for the company. Compared to MI325X, the company is more looking forward to the upcoming MI350The company recently acquired ZT Systems, which is expected to further enhance the capabilities of MI400 and subsequent related products. If the company can achieve breakthroughs in AI GPU products and capture market share from NVIDIA, it will bring even greater "surprises" to the market.

Below is Dolphin Research's detailed analysis of AMD's financial report:

1. Overall Performance: Revenue & Profit Both Increased Year-on-Year

1.1 Revenue

AMD achieved revenue of $7.44 billion in the first quarter of 2025, a year-on-year increase of 35.9%, exceeding market expectations ($7.1 billion). The growth in revenue this quarter was mainly driven by the increase in data center and client businesses. The performance of the client business was the primary source of the revenue exceeding expectations.

1.2 Gross Profit

AMD achieved a gross profit of $3.74 billion in the first quarter of 2025, a year-on-year increase of 45.9%. The growth rate of gross profit exceeded that of revenue, mainly due to the improvement in gross margin.

AMD's gross margin for this quarter was 50.2%, an increase of 3.4 percentage points year-on-year, but lower than market expectations (52.2%). The continuous improvement in gross margin is mainly attributed to structural changes in the business mix. With an increased proportion of data center products and a richer lineup of Ryzen processors, the company's gross margin has achieved year-on-year growth for five consecutive quarters.

1.3 Operating Expenses

AMD's operating expenses in the first quarter of 2025 were $2.61 billion, a year-on-year increase of 22%. Both R&D expenses and selling and administrative expenses increased by varying degrees.

Breaking down the specific expenses:

1) R&D Expenses: The company's R&D expenses for this quarter were $1.73 billion, a year-on-year increase of 13.3%. R&D expenses have consistently shown an upward trend. As a technology company, the company continues to emphasize R&D. Due to revenue growth outpacing R&D investment, the R&D expense ratio for this quarter fell to 23.2%, which is within a relatively reasonable range;

2) Selling and Administrative Expenses: The company's selling and administrative expenses for this quarter were $889 million, a year-on-year increase of 42.9%. The expense situation on the sales side is highly correlated with revenue growth, and the growth rates of the two items were relatively close this quarter.

1.4 Net Profit

AMD achieved a net profit of $700 million in the first quarter of 2025, better than market expectations ($650 million). The net profit margin for this quarter was 9.5%, showing a recovery.

Due to significant deferred expenses from AMD's acquisition of Xilinx, profits will be eroded for some time in the future. However, regarding the actual operating conditions for this quarter, Dolphin Research believes that "core operating profit" is more relevant.

Core Operating Profit = Gross Profit - R&D Expenses - Selling and Administrative Expenses

After excluding the impact of acquisition costs, Dolphin Research estimates AMD's core operating profit for this quarter to be $1.122 billion, a year-on-year increase of 170%.

The growth in the company's operational performance this quarter was mainly driven by the growth in the data center and client businesses. Although operating expenses increased, the company's gross profit margin (GAAP) has stabilized above 50%, bringing the core operating profit back to a relatively high level.

2. Business Segmentation: Strong CPU Performance, Anticipation for New GPU Products

From the company's business segmentation, the data center and client businesses are currently the core businesses, accounting for 80% of the total. With the growth in AI demand and an increase in CPU market share, the data center business has stabilized at around 50%, which is the most closely watched aspect of the market.

2.1 Data Center Business

AMD's data center business achieved revenue of $3.67 billion in the first quarter of 2025, a year-on-year increase of 57.2%, exceeding market expectations ($3.66 billion). This quarter's growth was driven by sales of AMD Instinct GPUs and the fourth and fifth generation AMD EPYC CPUs.

On a quarter-on-quarter basis, Dolphin Research believes that the company's CPU share in the data center continued to increase, while AI GPU revenue saw a slight decline, with the market eagerly anticipating the company's upcoming MI350 and MI400 series products.

Progress of the MI series products: ① MI325X has already entered mass production in the fourth quarter of 2024; ② MI350 is expected to enter mass production ahead of schedule in mid-2025; ③ MI400 will be launched in 2026.

Looking at the capital expenditures of the four major cloud vendors in the first quarter of 2025, the total capital expenditure of the four reached $78.3 billion, a year-on-year increase of 64.4%. Among them, the growth rate of capital expenditure for cloud vendors is higher than that of AMD's data center business, indicating that the company has not yet gained more market share in the overall cloud market.

From the perspective of the main products in the data center business, although the company's CPU products continue to erode Intel's market share, major vendors still prefer NVIDIA's related products in the GPU segment. Customers are more looking forward to the upcoming MI350 and MI400 for the company's MI series products.

Views on the company's data center business:

1) Short-term perspective: Affected by the export restrictions on the MI308 products, the company will face an inventory impairment impact of $800 million, which translates to an annual revenue impact of approximately $1.5 billion, putting pressure on the performance in the following two quarters;

2) Medium to long-term perspective: The company's CPU market share in both client and data center segments continues to increase; in terms of GPU, after acquiring and integrating ZT Systems, the company is expected to integrate AI rack-level system capabilities into the upcoming MI400, enhancing its competitiveness against NVIDIA. If the company's subsequent products perform better, the GPU market will provide greater potential for the company.

2.2 Client Business

AMD's client business achieved revenue of $2.3 billion in the first quarter of 2025, a year-on-year increase of 67.7%, significantly exceeding expectations for the quarter ($2.06 billion). The growth in the client segment is mainly attributed to the increased sales of the fifth-generation Ryzen CPUs.

According to industry data, global PC shipments in the first quarter of 2025 reached 63.2 million units, a year-on-year increase of 5%. Meanwhile, AMD's client business achieved a year-on-year growth of 67.7%. In contrast, Intel's client business declined by 7.8% year-on-year. Comparing the growth rates of the three, Dolphin Research believes that the overall PC market is still recovering, with AMD gaining a more significant share in the PC market.

From the perspective of the overall market CPU share, AMD's CPU share shows a steady upward trend. In the segmented market, AMD has already surpassed Intel in the desktop market; in the server market, its share has increased from around 10% to over 20%. With the company's continued breakthroughs in the CPU market, its client business is expected to achieve sustained growth

2.3 Other Businesses

1) Gaming Business: The company's gaming business achieved revenue of $650 million in the first quarter of 2025, a year-on-year decline of 29.8%. Although sales of Radeon graphics cards have increased, the decline in semi-custom product sales offset the growth performance of the former, and the current inventory in the gaming console channel has returned to normal levels.

Dolphin Research believes that as the current generation of gaming consoles (PlayStation 5 and Xbox Series X) enters the later stage of their product life cycle, overall demand for the gaming business will remain relatively sluggish.

2) Embedded Business: The company's embedded business achieved revenue of $820 million in the first quarter of 2025, a year-on-year decline of 2.7%. Although the embedded business still experienced a decline, the rate of decline has significantly narrowed, and downstream demand has begun to improve. With the improvement in demand from the testing and measurement, communications, and aerospace markets, the embedded business is expected to resume growth in the second half of 2025.