AMD Q3 Deep Dive: Data Center, AI Acceleration Drive Growth Amid Inventory and Margin Questions

Computer processor maker AMD (NASDAQ:AMD) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 35.6% year on year to $9.25 billion. On top of that, next quarter’s revenue guidance ($9.6 billion at the midpoint) was surprisingly good and 4.7% above what analysts were expecting. Its non-GAAP profit of $1.20 per share was 2.4% above analysts’ consensus estimates.

Is now the time to buy AMD? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

AMD’s third quarter results were shaped by robust demand in its data center and AI businesses, as well as strong sales of server and PC processors. Management attributed the revenue growth to record sales of EPYC CPUs and Instinct GPUs, noting broad-based adoption across cloud, enterprise, and hyperscale customers. CEO Lisa Su highlighted that, “the combination of our expanding compute franchise and rapidly scaling data center AI business drives significant revenue and earnings growth.” However, despite these positive drivers, the market reacted negatively to the results, reflecting investor concerns raised on the call around higher inventory levels and the sustainability of recent growth trends. Management acknowledged increased operating expenses linked to aggressive R&D and go-to-market investments.

Looking ahead, AMD’s forward guidance is anchored in expectations for continued momentum in the data center and AI segments, with particular emphasis on the ramp of the MI350 GPU series and broadening customer adoption. Management cited deepening relationships with major clients such as OpenAI and Oracle, and articulated confidence in the upcoming launch of the MI400 and Helios rack-scale solutions in 2026. CFO Jean Hu underscored ongoing investments to capitalize on AI opportunities, while cautioning that the transition to next-generation products could temporarily impact gross margins. CEO Lisa Su stressed, “We expect strong demand into 2026, driven by new product launches and expanded partnerships across hyperscale and enterprise customers.”

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to accelerating adoption of AMD’s AI and server products, along with a strong PC processor cycle. The negative market reaction reflected questions over inventory buildup and future gross margin pressures.

• Data center AI ramp: AMD’s data center segment was propelled by rapid adoption of Instinct MI350 GPUs and strong uptake of 5th Gen EPYC Turin processors. Management emphasized that cloud and enterprise customers are scaling deployments, driving record segment revenue.
• OpenAI partnership impact: The multiyear agreement with OpenAI to deploy Instinct GPUs is expected to accelerate AMD’s AI business and reinforce its standing as a core compute provider. Management noted that this relationship is influencing broader customer engagement and solution adoption.
• PC and gaming momentum: Ryzen 9000 CPUs for desktops and strong semi-custom sales to gaming console makers contributed to growth in the PC and gaming segments. Enterprise demand for Ryzen-powered notebooks rose significantly, with management pointing to large commercial wins across key industries.
• ROCm software stack progress: AMD launched ROCm 7, the latest version of its open-source AI software, which delivers major performance gains and improves developer experience. Management noted that contributions from major partners are strengthening the ROCm ecosystem and broadening its appeal.
• Inventory and R&D spending: Higher inventory days outstanding reflect preparation for anticipated demand; however, management acknowledged that this, combined with elevated R&D investment, has contributed to investor concerns about operational efficiency and margin trajectory.

Drivers of Future Performance

AMD’s outlook is driven by sustained demand for AI infrastructure, new product launches, and growing customer partnerships, but faces headwinds from product transitions and cost pressures.

• AI product launches: Management expects continued growth from the ramp of MI350 GPUs and the upcoming launch of the MI400 Series and Helios rack-scale solutions, targeting large-scale AI and supercomputing deployments. These innovations are anticipated to drive revenue and expand AMD’s presence in high-performance computing.
• Supply chain and customer mix: Expanding relationships with hyperscalers, cloud providers, and enterprise customers are expected to support revenue growth. Management emphasized that careful supply chain planning is underway to meet multi-gigawatt-scale deployments, but also noted that broadening the customer base beyond single large clients remains a strategic priority.
• Margin and inventory risks: Transitioning to next-generation products could temporarily pressure gross margins and create operational inefficiencies. Management cautioned that elevated inventory levels and aggressive R&D spending will need to be monitored to ensure long-term margin stability.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be watching (1) the pace and breadth of adoption for MI350 and anticipated MI400 GPU launches, (2) management’s ability to diversify its AI customer base beyond OpenAI and Oracle, and (3) progress in reducing inventory days outstanding and managing operating expenses. Execution on the Helios rack-scale solution and new commercial wins in the enterprise and cloud sectors will also be key indicators of AMD’s strategic momentum.

AMD currently trades at $243.86, down from $250.11 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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