AMD: CPUs Are Eating Intel for Breakfast—When Will Its AI GPUs Go Toe-to-Toe with NVIDIA?

$AMD(AMD.US) released its Q2 2025 financial results (ending June 2025) after the U.S. stock market closed on the morning of August 6, 2025, Beijing time. Key points are as follows:

1. Overall Performance: Revenue and gross margin met guidance expectations. AMD achieved revenue of $7.69 billion in Q2 2025, a year-on-year increase of 31.7%, exceeding market expectations ($7.43 billion). The year-on-year growth in revenue was mainly driven by client and gaming businesses, as well as data center business.

The company's gross margin (GAAP) for this quarter was 39.8%, showing a significant decline, primarily due to an inventory impairment related to MI308, impacting approximately $800 million. Excluding this impact, the company's actual gross margin would be 50.2%, remaining flat quarter-on-quarter.

2. Operating Expenses: The company's R&D expenses for this quarter were $1.89 billion, a year-on-year increase of 19.6%; sales and administrative expenses were $990 million, a year-on-year increase of 52%. While revenue maintained high growth, the company's core operating expenses also increased. The core operating expense ratio for this quarter reached 37.5%, directly affecting the company's profit release.

AMD achieved a net profit of $872 million this quarter, mainly influenced by non-recurring items. From an operational perspective, the company's core operating profit for this quarter was $174 million, a significant decline, with a core operating profit margin of only 2.3%.

3. Business Segments: Driven by growth in data center and client businesses, the combined revenue of these two segments accounted for over 70%.

1) Client Business Gaining Market Share: This quarter's revenue grew to $2.5 billion, a year-on-year increase of 67.5%. The global PC market shipment increased by 5% year-on-year, while the company's client business saw substantial growth, mainly due to AMD's continued market share gain in the PC market.

2) Data Center Awaiting New Product Boost: This quarter's revenue was $3.24 billion, a year-on-year increase of 14.3%. The year-on-year growth in data center business was mainly driven by increased shipments of server CPU products, rooted in enhanced product competitiveness and increased capital expenditure by core cloud providers.

① Server GPU: Compared to the MI325 series products, the market is more anticipating the company's MI350 series new products, resulting in relatively flat AI GPU revenue in the first half of the year. With the release of the MI350 series new products, the company's related revenue in the second half of the year is expected to increase significantly.

② Server CPU: The server CPU business contributed the main increment to the data center business in the first half of the year, mainly due to the company's increased market share in the server CPU market. According to third-party data, the company's market share in the server CPU market has increased from 10% to around 30%.

4. MI308 Impact: Trump previously required AMD's China-specific product MI308 to obtain a sales license before it could be sold. AMD also mentioned an inventory impairment impact of approximately $800 million for this quarter.

According to Dolphin Research's calculation at a 47% gross margin, this $800 million inventory needs to be converted into sales revenue, corresponding to approximately $1.5 billion in revenue.

As the ban is now easing, these impairments are considered noise, and it is generally estimated that MI308 could bring AMD $800 million to $1 billion in revenue in the second half of the year.

5. AMD Performance Guidance: The revenue for Q3 2025 is expected to be $8.4-9.0 billion (market expectation $8.37 billion), with the midpoint ($8.7 billion) representing a quarter-on-quarter growth of 13.2%. The outlook does not include any revenue from AMD Instinct MI308 shipments to China. The company expects a non-GAAP gross margin of around 54% (market expectation 54.1%).

Dolphin Research's Overall View: Outperformance comes from gaming business, AI GPU meets expectations.

AMD's revenue and gross margin for this quarter both met previous guidance expectations. The year-on-year revenue growth for this quarter was mainly driven by client business, gaming business, and data center business; the decline in gross margin for this quarter was mainly due to an approximately $800 million impairment expense in the China market. Excluding this impact, the company's non-GAAP gross margin for this quarter would still return to around 54%.

As for the revenue guidance exceeding expectations for the next quarter, it is mainly driven by the recovery in gaming business demand and the replenishment of semi-custom product inventory. Regarding the AI GPU business, which is the market's main focus, Dolphin Research speculates that the company's AI GPU revenue for the next quarter is expected to reach over $1.7 billion, which is basically in line with market expectations.

The core focus for AMD's performance is mainly on three aspects:

a) CPU Competitiveness in the PC Market: The PC business is the company's foundation, and as the company's product strength improves, it is gradually eroding Intel's market share. In this quarter, the overall PC market shipment only grew by 5.4%, while AMD's client business revenue growth rate reached 67.5%, reflecting AMD's gradually increasing competitiveness in the PC market.

According to third-party data, AMD's current market share in the desktop market has exceeded 50%, surpassing Intel. If Intel's manufacturing capability continues to lag, and with the iterative upgrade of the company's Zen products, AMD is expected to further expand its advantage in the PC market.

b) Gaining Market Share in the Server CPU Field: In addition to surpassing in the desktop market, AMD's market share in the server market has also begun to increase significantly. With the "CPU+GPU" combination, the company's market share in the server market has rapidly increased from 10% to around 30%.

Due to Intel's weak performance in CPU products, AMD's server CPU products contributed the main increment to the company's data center business in the first half of the year. With the mass production and shipment of the MI350 series, the company's server CPU is expected to continue to rise steadily.

c) AI Chips in the Server Field: Although the company launched the MI325 series products in the second half of last year, the market is relatively more anticipating the MI350 series products. Due to the product transition period, the company's AI GPU revenue in the first half of the year was relatively flat. Therefore, the AI GPU figures for this quarter are not important; more attention is paid to the company's expectations and outlook for the AI chip business in the second half of the year.

The company's MI350 series products were also officially released in June, and with the ramp-up of mass production in the second half of the year, it is expected to bring a significant increase in the company's AI GPU revenue.The current expectation for the company's AI GPU business for the next quarter is expected to reach over $1.7 billion, which is close to the market expectation of $1.73 billion. The focus remains on whether the MI350 series shipments and MI450 series progress can exceed expectations.

This figure is relatively mediocre, with guidance for Q3 at $1.7 billion "excluding the part of MI308 that can be resold in China". If MI308 sells around $300 million in Q3, then Q3 would be $2 billion.

The market now expects AI revenue of $13 billion for 2026. According to the guidance of cloud companies' Capex being high in the first half and low in the second half of 2026, each quarter in the first half of 2026 needs at least $3.5 billion, with Q3 at $2 billion and Q4 possibly needing over $3 billion. After a 70% increase in stock price in a single quarter, this AI progress can only be considered relatively mediocre.

With the mass production of AMD's MI350 series and NVIDIA's GB series, the four major manufacturers have all increased their capital investment in AI servers in the second half of the year.

Dolphin Research expects the combined capital expenditure of the four companies (Meta, Google, Microsoft, and Amazon) in 2025 to increase to approximately $389 billion, with a year-on-year growth rate of 55%, indicating that the current AI demand remains hot. The increase in capital expenditure has boosted the procurement of servers and related products, benefiting AMD, NVIDIA, and custom ASIC manufacturers.

As the four major cloud services increase capital expenditure, the stock prices of core AI chip stocks like AMD have already risen, indicating that some expectations have already been priced in.

Considering AMD's current valuation ($282.6 billion), it roughly corresponds to a 40x PE of the company's post-tax core operating profit for 2026 (assuming revenue growth +20%, GAAP gross margin 52.1%, tax rate 13%). [Note: Post-tax core operating profit = gross profit - R&D expenses - sales and administrative expenses.]

Since the company was in a product transition period in the first half of 2025, and the market is more focused on the growth brought by the mass production of the MI350 series, the valuation consideration is more based on the expected situation in 2026.

Driven by AI demand, Dolphin Research estimates the company's post-tax core operating profit CAGR% from 2025 to 2029 to be 30.3%, making the PEG for 2026 (with G referring to CAGR%) greater than 1.

With the increase in capital expenditure by cloud giants in the second half of the year, the certainty of AMD's performance growth is relatively strong due to order overflow, and the current valuation already includes the market's relatively optimistic expectations for the company.

Overall, AMD's short-term performance is mainly affected by CPU market share, server GPU shipments, and changes in gross margin, while from a medium to long-term perspective, the market's main focus is on the battle for the main battlefield of AI computing power, which can provide the company with greater imagination space.

The recent rise in the company's stock price also includes market expectations for the MI350 series and other AI GPU products to exceed expectations. The company's current valuation also reflects the market's relatively optimistic expectations for the company, but this time the management's expectations for AI GPU for the next quarter only meet market expectations and do not provide significant highlights.

In addition, the company's continuously growing operating expenses will also put pressure on profit release.

Although there is short-term pressure for a pullback, although there is short-term pressure for a pullback, this performance does not have any fundamental flaws, it is just that AI revenue and guidance are not impressive enough to catch up with the company's soaring stock price.

Currently, the company is still in a strong product cycle and AI high prosperity cycle, so a pullback is still an opportunity.

Here's Dolphin Research's detailed analysis of AMD's financial report:

I. Overall Performance: Revenue and Gross Margin Met Guidance

1.1 Revenue

AMD achieved revenue of $7.685 billion in Q2 2025, a year-over-year (YoY) increase of 31.7%, surpassing market expectations ($7.43 billion). The company's revenue growth this quarter was primarily driven by its Client and Gaming segments, as well as the Data Center business. Notably, the Gaming segment significantly exceeded expectations this quarter.

1.2 Gross Margin

AMD achieved a gross profit of $3.06 billion in Q2 2025, a YoY increase of 6.8%. However, the gross margin for the quarter was 39.8%, showing a significant decline, primarily due to an approximate $800 million inventory write-down related to MI308. Excluding the impact of the inventory write-down, the company's gross margin would have been 50.2%, consistent with the previous quarter.

1.3 Operating Expenses

AMD's operating expenses in Q2 2025 were $2.89 billion, a YoY increase of 29%. Both Research and Development (R&D) expenses and Selling, General & Administrative (SG&A) expenses increased to varying degrees.

Specifically, breaking down the expenses:

1）R&D Expenses: The company's R&D expenses this quarter were $1.89 billion, a YoY increase of 19.6%. Despite rapid revenue growth, R&D expenses have consistently increased. The current R&D expense ratio is 24.6%.

2）SG&A Expenses: The company's SG&A expenses this quarter were $990 million, a YoY increase of 52.5%. Sales-related expenses are highly correlated with revenue growth, indicating that the company is increasing its sales investments as revenue accelerates.

1.4 Profitability

Due to significant deferred expenses arising from AMD's acquisition of Xilinx, profits will be eroded for some time. For the actual operating performance this quarter, Dolphin Research believes that "core operating profit" is a more accurate indicator.

Core Operating Profit = Gross Profit - R&D Expenses - SG&A Expenses

After excluding the impact of acquisition-related expenses, Dolphin Research estimates AMD's core operating profit for this quarter to be $174 million, representing a significant decline. The company was impacted by approximately $800 million in MI308 inventory write-downs this quarter, and the increase in operating expenses also squeezed profitability.

II. Segment Breakdown: CPU Market Share Gains, AI GPU Poised for Growth

Looking at the company's business segments, Data Center and Client businesses are currently the main drivers, accounting for 70% of total revenue. With increasing demand for AI GPUs and rising server CPU market share, the Data Center business's contribution has significantly increased. In the second half of the year, as MI350 series production scales up, the Data Center segment's share is expected to rise further.

2.1 Data Center Business

AMD's Data Center business generated revenue of $3.24 billion in Q2 2025, a YoY increase of 14.3%, slightly below market expectations ($3.25 billion). The YoY growth this quarter was driven by increased shipments of AMD EPYC CPUs.

Combining company and market expectations, a detailed breakdown reveals that Dolphin Research anticipates AI GPU revenue of approximately $1 billion this quarter, with Data Center CPU and related revenue at around $2.2 billion.

Both AMD's CPUs and GPUs are contributing to the growth of the company's Data Center business:

a）Data Center CPU: Amidst Intel's weaker CPU product offerings, AMD, with its 'CPU+GPU' combination, has continuously increased its market share in the Data Center CPU market, rising from a previous 10% to 30%. During the AI GPU transition phase, CPUs contributed the primary growth to the Data Center business in the first half of the year.

b）AI GPU: Compared to the MI325 released in the second half of last year, the market has higher expectations for the company's MI350 series products. During the product transition period in the first half of the year, AI GPU revenue remained relatively flat. Consequently, this quarter's related revenue is less critical; the market is more focused on the company's expectations for the next quarter.

Based on market and company insights, Dolphin Research anticipates AI GPU revenue to exceed $1.7 billion next quarter, excluding the MI308 impact. If regulations ease, the company's AI GPU revenue next quarter could reach approximately $2 billion.

Considering the recent capital expenditure increases by the four major cloud vendors (Meta, Google, Microsoft, and Amazon), each vendor is expected to increase procurement of AI servers and related chips in the second half of the year. Dolphin Research expects the combined capital expenditure of these four cloud vendors in 2025 is expected to increase to approximately $389 billion, representing a YoY growth rate of 55%. This indicates the current strong demand in the AI market.

Outlook for the Data Center business:

• Short-term perspective: CPU products will continue to gain market share from Intel, providing steady growth for the business. AI GPU, driven by the mass production of the MI350 series, is expected to see significant growth in the second half of the year and next year. Focus should be on the shipment status of the MI350 series.

• Medium to long-term perspective: Increased capital expenditure by core cloud vendors guarantees growth in the AI chip market, provided the company can offer competitive products to customers. After the MI350 series, attention should be paid to whether the company's MI450 series progress can exceed expectations.

2.2 Client Business

AMD's Client business generated revenue of $2.5 billion in Q2 2025, a YoY increase of 67.5%, slightly below market expectations ($2.56 billion). The growth in the Client business was primarily driven by increased sales of 5th Gen Ryzen CPUs and market share gains from Intel.

According to industry data, global PC shipments in Q2 2025 were 68.4 million units, up 5.4% YoY. Concurrently, AMD's Client business achieved 67.5% YoY growth. In contrast, Intel's Client business saw a 3.3% YoY decline.

Comparing the growth performance of these three, Dolphin Research believes that the overall PC market is still recovering, and AMD has gained more significant market share. In the desktop market, AMD's market share has already surpassed Intel's.

2.3 Other Businesses

1）Gaming Segment: The company's Gaming segment achieved revenue of $1.12 billion in Q2 2025, a YoY increase of 73%. This was primarily driven by the positive market response to newly launched gaming GPUs and the recovery in demand for semi-custom products.

Driven by downstream demand, Gaming segment revenue is the main source of the company's outperformance this quarter and next quarter, although its current share of total revenue is relatively small.

2）Embedded Segment: The company's Embedded segment generated revenue of $820 million in Q2 2025, a YoY decline of 4.3%, mainly due to inventory reductions in the industrial market. Although the Embedded business still saw a decline, the magnitude of the decline has narrowed, and downstream demand is beginning to improve.

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