Analyzing the AMD Q1 2024 Earnings and Outlook

Outside of Nvidia itself, AMD remains one of the most amazing stories in tech stocks in the last several years. CEO Lisa Su has taken the company from the doldrums to one of the most tracked and important companies in the world when it comes to computing and technology, with a market cap sitting over $250B. For most of its existence, AMD has benefited from being the second player in two player market; against Intel the CPU space and against Nvidia for graphics chips. This continues to be the scenario AMD finds itself in, but potentially with growth opportunities that exceed that same competition.       

But let’s take it one day (or quarter) at a time.

The results from AMD for Q1 were overall positive, but there is a clear delineation between the business divisions that are growing and those that are struggling. The good is outweighing the bad though thanks to strong growth in the AI accelerator and PC businesses.

In total the company brought in $5.5B in revenue and $2.5B in gross profit on a 52% gross margin. Net income was just over $1B, an increase of 4% year-over-year. Sequentially those results weren’t as solid, with revenue down 11% and net income down 19%, but we saw similar results from other tech companies this quarter.

The strength of the AMD results and its future comes from the data center division that saw revenue increase by 80% year-on-year to hit $2.3B, along with a noticeable operating margin increase. This growth comes from both the EPYC server processor line and the Instinct GPU accelerator family. AMD believes EPYC processors gained market share even with a seasonally down quarter for the segment. And with next-generation EPYC CPUs based on the new Zen 5 architecture coming later this year, codenamed “Turin”, that are rumored to offer substantial performance increases, AMD could continue to take share from Intel’s Xeon line.

Obviously most critical to AMD’s future is the MI300 family of accelerators designed to compete with the Nvidia H100 GPU. AMD said that revenue from the MI300 family has now exceeded $1B since its launch in late 2023 and it has raised revenue goals for the product from $3.5B up to $4.0B, another 15% jump over the 75% jump the company had previously projected LAST quarter.

Su stated on the earnings call that they continue to be supply constrained on MI300, which means there is more POTENTIAL headroom if AMD can work with the supply chain to gain access to additional inventory.

The client group responsible for Ryzen processors used in laptops and desktop PCs had a similarly good result: 85% YoY revenue increase to $1.4B and flipped from an operating margin loss to a small profit. This is primarily a result of the Ryzen 8000 series of CPUs including newer designs with built-in AI accelerators for the AI PC wave projected to engulf the PC market later this year. Strix Point is the follow up product for Ryzen that is expected to launch in the middle of the year and I have no reason to believe that the critical system partners like HP and Lenovo will have designs based on it.

Interestingly, Su did comment during the earnings call that AMD expects the PC market to return to growth this year, though how much of that is because of standard upgrade and replacement cycles and how much of it might be dependent on the ability to drive consumers to a new AI-enabled ecosystem is up in the air.

There were a couple of low lights though. The Gaming division, that encompasses both the semi-custom products division that builds chips for the Xbox and PlayStation consoles and the GPUs used for consumer PC gaming, saw revenue drop by half, to just $900M. Margins didn’t decrease that much, so AMD is doing a good job of managing costs with the fall off, but there are worries in the market that the Radeon product line continues to struggle against Nvidia’s GeForce. Adding to it that we are at the bottom of the current console cycle, and I wouldn’t expect the finances of this product group to change much in the rest of the year.

Finally, the embedded group also saw revenue cut by half on a year-over-year basis down to $800M, despite new design wins for the company’s Xilinx family of products with Subaru and Sony for the automotive market.

Based on the initial reaction by the market after earnings, investors are not particularly happy about the outlook projection for Q2 either. AMD is expecting results to be mostly flat with a ~$5.7B revenue target, despite expected growth in the data center and consumer PC segments.

To me though, the potential for growth with AI compute workloads in the data center and on edge devices like laptops and desktops, keeps AMD as one of the top companies to watch. It’s telling that AMD was able to increase its revenue projections for its flagship MI300 family of AI accelerators by $500M over a single quarter, an amount equivalent to the full 2024 revenue projection of Intel’s own Gaudi 3 AI accelerator. Add to that the pending server and AI PC processor family launches this year and I think we’ll find that this will still be a year of sizeable growth for AMD.