Overall, the chip maker had a strong first quarter.
Chipmaker Advanced Micro Devices (NASDAQ:AMD) turned in a strong first quarter and expects a solid Q2, despite a challenging economic and regulatory environment.
Overall, investors were pleased with the results, as AMD stock opened more than 4% higher on Wednesday.
The chipmaker and NVIDIA rival generated revenue of $7.4 billion in the quarter, up 36% year-over-year. That beat revenue estimates of $7.1 billion.
Net income skyrocketed 476% to $709 million, while earnings jumped 529% to 44 cents per share. On an adjusted basis, net income increased 55% to $1.6 billion, or 96 cents per share. That topped estimates of 94 cents per share.
Data center revenue rises 57%
AMD is one of NVIDIA’s chief rivals, as it competes for market share with its graphics processing unit (GPU) chips mainly for PCs and gaming. However, AMD fell way behind NVIDIA in creating AI chips for high-performance computing applications and data centers. So, this is an area where it’s trying to play catch-up.
In the first quarter, AMD hauled in $3.7 billion in data center revenue, up 57% year-over-year. It outpaced client and gaming revenue of $2.9 billion, up 28% year-over-year.
Breaking it out, client revenue was up 68% to $2.3 billion, driven by strong demand for the latest “Zen 5” AMD Ryzen processors in PCs. Gaming revenue fell 30% to $647 million.
“We delivered an outstanding start to 2025 as year-over-year growth accelerated for the fourth consecutive quarter driven by strength in our core businesses and expanding data center and AI momentum,” AMD Chair and CEO Lisa Su said.
Tariffs and export controls impact on outlook
In its outlook for the second quarter, AMD officials expect revenue of approximately $7.4 billion, plus or minus $300 million. That would be on par with Q1 and up about 28% from Q2 of 2024.
However, it excludes about $700 million in revenue from a restriction by the U.S. government placed on chip exports into China. This is not exclusive to AMD as other chip makers, including NVIDIA, are also subject to the restriction. For AMD, this will impact revenue of its MI308 chips.
The adjusted gross margin is estimated to be 43% including approximately $800 million in charges for inventory and related reserves due to the new export controls, or tariffs. Excluding this charge, the adjusted gross margin would be approximately 54%. A year ago, the adjusted gross margin was 53%.
The combined impact of the $700 million revenue hit and $800 million in tariff-related expenses adds up to a $1.5 billion earnings impact for AMD.
AMD stock earned a slew of price target downgrades after earnings, except for Wedbush, which raised its target to $120 from $115. Also, BofA upgraded AMD to a buy based on its strong outlook in the face of tariff impacts. However, others like Jefferies reduced its target, concerned about the longer term effects of the China restrictions.
Overall, AMD has a median price target of $130, which would be about a 30% return from its current price. I’m slightly less bullish, given the tariff uncertainty and its high P/E ratio of 98.
