AMD's Q2 revenue hits a record high, and guidance also exceeds expectations, but the export outlook for MI308 to China is unclear | Earnings Report Insights

Faced with the pressure of the United States tightening chip export controls, artificial intelligence (AI) chip giant AMD still achieved record revenue last quarter, with guidance for this quarter also exceeding Wall Street expectations.

Nevertheless, AMD's outlook for restoring exports of products affected by U.S. export restrictions to China remains uncertain. After the earnings report was released, AMD's stock price, which fell over 1% on Tuesday, extended its decline, dropping more than 5% in after-hours trading, highlighting the valuation pressure AMD faces after a significant stock price increase this year.

During the earnings call, AMD executives revealed that they had begun mass production of the new MI350 chip, which was announced more than a month ahead of schedule. After-hours trading saw AMD's stock price decline narrow to within 2%, but it later widened again, reflecting that concerns about sales prospects in China outweighed the overall optimistic guidance.

Before the earnings report was released, AMD's stock price had risen over 40% since the beginning of the year, making it the best-performing chip stock of the year, while its rival NVIDIA had risen over 30% during the same period. Some commentators believe that the current market valuation of AMD may be slightly high; while AMD is indeed a beneficiary of the AI race, the question is whether its performance is sufficient to justify this year's stock price increase, which should even exceed that of NVIDIA.

On August 5th, Tuesday, Eastern Time, AMD announced its Q2 2025 results and provided guidance for Q3 performance.

1) Key Financial Data:

Revenue: Q2 revenue was $7.685 billion, a year-on-year increase of 32%, with analysts expecting $7.43 billion, and a year-on-year increase of 36% in Q1.

EPS: On a non-GAAP basis, diluted earnings per share (EPS) for Q2 was $0.48, a year-on-year decrease of 30%, with analysts expecting $0.49, and a year-on-year increase of 55% in Q1.

Profit: On a non-GAAP basis, Q2 gross margin was 43%, compared to 54% in Q1 and 53% in the same period last year; operating profit was $899 million, a year-on-year decrease of 29%, with analysts expecting $902.8 million, and a year-on-year increase of 57% in Q1; net profit was $781 million, a year-on-year decrease of 31%, with a year-on-year increase of 55% in Q1.

2) Segment Business Data:

Data Center: Q2 revenue was $3.2 billion, a year-on-year increase of 14%, with a year-on-year increase of 57% in Q1.

Client: Q2 revenue was $2.5 billion, a year-on-year increase of 67%, with a year-on-year increase of 68% in Q1.

Gaming: Q2 revenue was $1.1 billion, a year-on-year increase of 73%, with a year-on-year decrease of 30% in Q1.

Embedded: Q2 revenue was $824 million, a year-on-year decrease of 4%, with a year-on-year decrease of 3% in Q1.

3) Performance Guidance:

Revenue: Third-quarter revenue is expected to be approximately $8.7 billion, with a fluctuation of $300 million, ranging from $8.4 billion to $9 billion, while analysts expect $8.37 billion.

Gross Margin: On a non-GAAP basis, the gross margin for the third quarter is expected to be 54%.

Second Quarter Revenue Maintains Over 30% Growth Rate, Profit Hit by Export Restrictions

The financial report shows that AMD's revenue in the second quarter was nearly $7.7 billion, close to the high end of the company's guidance range of $7.1 billion to $7.7 billion, setting a record for the highest quarterly revenue. The quarter maintained a year-on-year growth rate of over 30%, with the growth rate slightly slowing from 36% in the first quarter to 32%, which was less than Wall Street's expectations. Analysts expect the growth rate to fall below 30%, with a year-on-year growth of about 27.3%.

AMD's profit growth turned negative in the second quarter. Specifically, the EPS earnings that grew by 55% year-on-year in the first quarter declined by 30% year-on-year in the second quarter, the operating profit that grew by 57% in the first quarter fell by 29% in the second quarter, and the net profit that grew by 55% in the first quarter decreased by 31% in the second quarter. AMD stated that the second-quarter performance was affected by the U.S. government's restrictions on its MI308 data center GPUs.

AMD's gross margin in the second quarter fell by 10 percentage points year-on-year to 43%, in line with the company's own guidance.

When AMD announced its first-quarter financial report, it pointed out that after accounting for approximately $800 million in costs arising from the new U.S. export restrictions, the gross margin for the second quarter would drop to 43%. However, if this cost impact is excluded, the gross margin is expected to be around 54%. This means that without the U.S. export restrictions, AMD's gross margin in the second quarter could have remained flat compared to the previous two quarters.

Second Quarter Data Center Revenue Growth Slows to 14%, Client Business Including PC Chips Hits New High

In the second quarter, AMD's primary business, the data center, saw its revenue growth further slow, with a year-on-year increase of 14%, which is less than 30% of the 57% revenue growth in the first quarter. AMD stated that the growth in the data center business in the second quarter was driven by strong demand for EPYC processors, offsetting the impact of restrictions on exports to China for the MI308.

The client business, including personal computer (PC) chips, remains the main driver of AMD's overall revenue growth. In the second quarter, client business revenue reached $2.5 billion, marking a new quarterly high for the third consecutive quarter, with a year-on-year growth rate still close to 70%, slightly lower than the 68% in the first quarter.

Currently, the AI data center market is developing towards "full-stack" rack-level solutions. In March of this year, AMD completed the acquisition of ZT Systems, gaining expertise in designing rack-level AI servers. In the future, its servers will integrate chips, networking, and software, providing larger-scale end-to-end system products.

In June, AMD released the next-generation Instinct MI350 series chips and previewed the Helios rack system, which will be equipped with MI400 series chips and released next year. Subsequently, investment banks such as Piper Sandler raised AMD's target price, believing that the new products will drive GPU business growth, with expectations of a recovery starting in the second half of this year. In the earnings call following this financial report, AMD mentioned that the MI350 chips have already entered mass production ahead of schedule Like the first quarter, AMD attributed the growth of its client business in the second quarter to the strong demand for Ryzen processors under the "Zen 5" architecture and a richer product portfolio.

Before the earnings report was released, Susquehanna analyst Christopher Rolland pointed out that AMD's performance in the second quarter would benefit partially from the PC chip business, stating that AMD is taking market share in PC server processors from Intel. With its strong product lineup, AMD can also increase the average selling price of high-end desktop processors and laptop processors.

In the second quarter, AMD's gaming business revenue growth reversed the downward trend, changing from a year-on-year decline of 30% in the first quarter to a growth of 73%. AMD stated that the revenue increase in the gaming business was due to the rise in revenue from semi-custom products and strong demand for gaming graphics cards, Radeon.

Third Quarter Guidance Does Not Consider MI308 Export Revenue to China

The performance guidance indicates that AMD expects third-quarter revenue to grow by 23.5% year-on-year to nearly $32.4 billion, with a midpoint estimate of 27.9%, slowing growth to below 30%. However, AMD's entire guidance range is above analyst expectations.

This means that even in AMD's worst-case scenario, the revenue slowdown this quarter is less than Wall Street's expectations, and in the best-case scenario, AMD's revenue growth will remain flat compared to the second quarter, staying above 30%.

AMD's gross margin guidance for the third quarter is 54%, expected to rebound from 43% in the second quarter to the level of the first quarter. However, AMD noted,

Due to the company's export license application currently under review by the U.S. government, the current guidance does not consider any revenue from MI308 exports to China.

In April this year, AMD announced that new U.S. export restrictions would apply to MI 308, estimating that these restrictions could lead to up to $800 million in inventory, procurement, and related reserve costs. At that time, the media pointed out that based on this estimate, these regulations could have a potential impact of $1.5 billion to $1.8 billion on AMD's revenue, accounting for about 20% of the company's total AI sales for the fiscal year 2025.

Two weeks ago, AMD confirmed the good news that it would resume exports of MI 308 chips to China, stating that the license application for MI308 products to China would be advanced to the review process of the U.S. Department of Commerce, with plans to resume exports after the license is approved. This earnings report guidance indicates that while AMD expects to begin resuming sales of AI chips to China, it is still unclear when this will happen.

Despite the uncertainty surrounding export restrictions, AMD still expects significant revenue growth in the second half of the year. AMD executives stated during the earnings call that annual revenue from AI chips is expected to reach hundreds of billions of dollars.

AMD CEO Lisa Su stated in the earnings announcement that thanks to record strong growth in server and PC processor sales, AMD achieved strong revenue growth in the second quarter.

"We expect strong demand for our computing and AI product portfolio, and with the growth in sales of AMD Instinct MI350 series accelerators and the continued growth in market share for EPYC and Ryzen processors, we are prepared for significant growth in the second half of the year." Dr. Lisa Su reiterated during the earnings call that AMD's export license application is still under review, and the guidance for Q3 does not include any revenue from MI308. She also mentioned that AMD expects to resume MI308 shipments after the license is approved, but this will depend on end customer demand and supply chain readiness