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Advanced Micro (AMD) is trading roughly flat following upside Q1 results last night. The EPS upside was slightly larger than recent quarters. Revenue for this chipmaker, which competes against NVIDIA (NVDA) and Intel (INTC) in the AI race, rose 35.9% yr/yr to $7.44 bln, which was better than expected, as Instinct AI accelerator, EPYC and Ryzen CPU sales grew significantly yr/yr. Also, the mid-point of Q2 revenue guidance was above analyst expectations.

• Last quarter, the stock dropped following earnings despite upside results due to a concerning miss on Data Center segment revenue. In Q1, Data Center segment revenue grew 57% yr/yr to $3.7 bln, primarily driven by continued CPU server share gains across both cloud and enterprise customers and strong growth of AMD Instinct GPUs. Hyperscaler demand remained strong as cloud providers expanded EPYC deployments.
• Turning to its Data Center AI business, revenue increased by a significant double-digit percentage yr/yr as MI325X shipments ramped to support new enterprise and cloud deployments. Several hyperscalers expanded their use of Instinct accelerators to cover an increasing range of generative AI search. AMD also added multiple Tier 1 cloud and enterprise customers in Q1.
• AMD has begun sampling its next-gen MI350 series with multiple customers and remains on track to begin accelerated production by mid-year 2025. Looking further ahead, AMD is pretty excited about Instinct MI400, an upcoming series of AI accelerators slated for release in 2026. They are designed to improve performance and efficiency for AI training and inference tasks. AMD says its teams are fully engaged and already co-designing with key customers on rack-level designs. Early customer feedback has been very positive. AMD expects MI400 will significantly expand its AI accelerator TAM as customers plan broader Instinct deployments.
• As a reminder, in April, a new export license requirement was put in place for MI308 shipments to China. AMD estimated a $700 mln revenue reduction in Q2 and $1.5 bln for FY25.
• Client and Gaming segment revenue grew 28% yr/yr to $2.9 bln. The clear driver was Client with revs surging 68% yr/yr to $2.3 bln, driven by strong demand for the latest "Zen 5" AMD Ryzen processors and a richer mix. Gaming revenue fell 30% yr/yr to $647 mln due to a decrease in semi-custom revenue. And finally, Embedded segment revenue declined 3% yr/yr to $823 mln as demand in end markets remained mixed.

Overall, we think this was a decent report for AMD with the Q2 guidance being the highlight. The guidance has calmed some nerves. Its Data Center segment performed pretty well. It was good to hear AMD reaffirm its timelines for both its MI350 and MI400 series. We had some concerns about how the new export license requirement might impact Q2 and FY25 guidance. While significant, at least we have some clarity. However, we think a cloud remains over AMD until the China issues get resolved.