AMD's (AMD.US) revenue soared by 50%, and its data center business doubled, yet it was sold off due to growth expectations that failed to "impress" the market.

Despite delivering a report showing a 50% year-over-year revenue increase, AMD (AMD.US) saw a significant drop in its stock price in after-hours trading. On Tuesday evening Eastern Time, AMD released its second-quarter financial results for fiscal year 2026, which exceeded market expectations; however, the revenue guidance for the third quarter was only slightly above consensus, falling short of the "super explosion" that some investors had anticipated, causing the stock to drop by over 9% at one point after hours. According to data, by the end of the second quarter on June 27, AMD achieved revenue of $11.54 billion, a 50% increase year-over-year, surpassing the analyst average expectation of $11.28 billion. Net profit reached $2.3 billion, translating to a diluted earnings per share of $1.38, significantly up from $872 million ($0.54) in the same period last year. After excluding certain items, the adjusted earnings per share were $1.66, also better than the market expectation of $1.62. The performance surge was largely driven by the data center business. This segment saw sales jump 107% year-over-year to $6.72 billion, exceeding analysts' expectations of $6.48 billion. AMD attributed this to strong sales in central processing units (CPUs) and graphics processing units (GPUs). Server CPUs branded under EPYC are continuously capturing market share from its old rival Intel Corporation (INTC.US). CEO Lisa Su disclosed during the conference call that large cloud customers such as Amazon.com, Inc. (AMZN.US) AWS, Microsoft Corporation (MSFT.US) Azure, Alphabet Inc. Class C (GOOGL.US) Cloud, and Oracle Corporation (ORCL.US) are increasingly expanding the deployment of EPYC in their internal infrastructure and public cloud services. With the rise of applications like AI agents, CPUs have regained importance in data centers as key general-purpose chips for running AI workloads, carving out a second front for AMD in the AI era. On the GPU front, AMD continues to position itself as NVIDIA Corporation (NVDA.US)'s strongest challenger. With global tech giants and governments rushing to build AI data centers, AMD is transitioning from merely selling chips to providing complete rack-level systems that integrate CPUs, GPUs, and networking equipment, directly competing with NVIDIA's similar products. One of the highlights of this financial report is the imminent delivery of AMD's first rack-level AI system, "Helios." Su stated at the AMD AI event in July that the second-generation Helios AI serversequipped with MI455X AI accelerators and processors manufactured by Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US)are fully in production and will ship in the coming months. AMD added on Tuesday that it expects shipments of Helios to gradually ramp up in the fourth quarter, with initial customers including Meta (META.US), OpenAI, and Oracle Corporation, marking AMD's formal entry into the "full system" competitive stage in AI infrastructure. To secure long-term demand, AMD has recently made substantial moves in securing customers and infrastructure resources. About two weeks ago, the company announced an agreement with the AI star company Anthropic, which is expected to go public, to sell AI servers worth several billion dollars. This batch of servers is scheduled to be deployed starting in early 2027, powered by MI450 chips with up to 2 gigawatt capacity. AMD will also invest up to $5 billion in Anthropic based on deployment milestones. Additionally, AMD has secured up to 2.5 gigawatts of data center capacity through Core Scientific (CORZ.US), which has transformed from cryptocurrency mining. These initiatives undoubtedly lay the groundwork for scaling its future AI business. However, the trigger for the stock price drop was the third-quarter guidance provided by AMD. The company expects revenues in the third quarter to be about $13 billion, with a fluctuating margin of $300 million. Although the median is significantly above the analyst average expectation of $12.52 billion, some Wall Street estimates already exceeded $13 billion, with some projecting as high as $14 billion. Clearly, in the context of AI investment enthusiasm pushing the stock price to double within the year, the market was expecting a more "explosive" growth blueprint. Moreover, AMD anticipates an adjusted gross margin of around 56% for the third quarter, which is broadly in line with expectations. Investors are concerned that factors such as a weak PC market, tight supply and rising prices of memory chips may suppress future profit margins. The report shows that revenue from the client and gaming division, covering PCs and game consoles, grew 6% year-over-year to $3.84 billion, while the embedded business, which includes industrial-use chips, grew 19% year-over-year to $977 million. Su acknowledged that although the PC market performed better than expected in the first half of the year, it is still anticipated to decline in the second half. AMD also faces industry-wide supply constraints. It is highly reliant on Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, whose tight advanced packaging capacity has become a key bottleneck limiting AMD's AI chip shipments. Nevertheless, company executives are quite optimistic about the mid-to-long-term outlook. Chief Financial Officer Jean Hu indicated that data center sales are expected to accelerate further in the second half of 2026, driving overall revenue growth. Su explicitly predicted that the companys data center revenue would "double again" by 2027, and in the second half of fiscal year 2026, server revenue would grow over 80% year-over-year. Earlier in July, AMD raised its total global semiconductor market size forecast to $20 trillion by 2028, with the AI accelerator market expected to contribute $14 trillion, significantly up from the previous forecast of $5 trillion. Su stated, "Demand for both accelerators and CPUs far exceeds our previous expectations." Emarketer analyst Jacob Bourne commented, "AMD is evolving from a chip challenger to a competitor in the AI infrastructure space." However, as a result, the company has entered a stage alongside NVIDIA Corporation and cloud giants, where it must continue to prove through performance that its massive AI investments can consistently accelerated returns. During the conference call that day, analysts repeatedly inquired about the detailed path to achieving the doubling goal by 2027, but Su only responded that growth could potentially "far exceed 100%," which perhaps reflects that after the market has assigned it a high valuation, every step AMD takes must be more "brilliant" than just "eye-catching." "Specific numbers are not convenient to disclose," but she also pointed out that in the long term, the company is expected to surpass the previously set goals of 35% annual revenue growth and $20 earnings per share.