AMD Stock Slips Despite 30% Earnings Growth and Stronger-Than-Expected Guidance
Key Points
Third-quarter revenue and adjusted earnings per share (EPS) exceeded Wall Street's estimates, with the top-line beat a sizable one.
Free cash flow was a record $1.53 billion, up 208% year over year.
Fourth-quarter guidance for revenue of $9.6 billion sprinted by the analyst consensus estimate of $9.2 billion.
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Shares of Advanced Micro Devices (NASDAQ: AMD) are down 3.9% as of 7:42 p.m. ET in Tuesday's after-hours trading, following the chipmaker's release of its third-quarter 2025 report.
The report was strong. The quarter's revenue and adjusted earnings beat Wall Street's estimates, with the top-line beat a sizable one, and fourth-quarter revenue guidance also easily exceeded the analyst consensus estimate.
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So why did the stock edge down after the release? It was largely due to Tuesday's stock market, in my view. The market declined on Tuesday due to concerns about high stock valuations in the artificial intelligence (AI) space. News came out that Michael Burry, a well-known hedge fund manager, took bear positions, via options, on AI darlings Nvidia and Palantir Technologies. (In other words, he's betting these stocks will decline.)
My hunch is that had AMD released its results a week or so ago, its stock would have risen (or at least not fallen) afterward.
Long-term investors should focus on AMD's results and not place undue importance on the market's reaction.
Image source: Getty Images.
Advanced Micro Devices' key numbers
| Metric | Q3 2024 | Q3 2025 | Change YOY |
|---|---|---|---|
| Revenue | $6.82 billion | $9.25 billion | 36% |
| GAAP operating income | $724 million | $1.27 billion | 75% |
| Adjusted operating income | $1.72 billion | $2.24 billion | 30% |
| GAAP net income | $771 million | $1.24 billion | 61% |
| Adjusted net income | $1.50 billion | $1.97 billion | 31% |
| GAAP earnings per share (EPS) | $0.47 | $0.75 | 60% |
| Adjusted EPS | $0.92 | $1.20 | 30% |
Data source: Advanced Micro Devices. GAAP = generally accepted accounting principles. YOY = year over year.
This was the second-consecutive quarter that AMD had no sales of its AI-enabling graphics processing units (GPU) chips in China. Last quarter, the reason was solely that U.S. export controls restricted sales of such chips to China. The most recent reason, however, is reportedly that the Chinese government directed its companies not to purchase advanced AI chips from U.S. companies, such as Nvidia and AMD.
Investors should focus on the adjusted numbers, which exclude one-time items. Adjusted gross margin was 54%, up slightly from 53.6% in the year-ago period.
Wall Street was looking for adjusted EPS of $1.17 on revenue of $8.75 billion, so AMD exceeded both estimates. It also surpassed its own revenue guidance of 28% year-over-year growth. (It doesn't issue a profit outlook.)
In the quarter, AMD generated cash of $2.16 billion running its operations, up from $628 million in the year-ago period. Free cash flow was a record $1.53 billion, up 208% year over year. The company ended the quarter with cash, cash equivalents, and short-term investments of $7.2 billion, and long-term debt of $2.3 billion.
AMD's segment performance
| Segment | Q3 2025 Revenue | Change YOY |
|---|---|---|
| Data center | $4.34 billion | 22% |
| Client* | $2.75 billion | 46% |
| Gaming* | $1.30 billion | 181% |
| Embedded | $857 million | (8%) |
| Total | $9.25 billion | 36% |
Data source: Advanced Micro Devices. *Client and gaming is a single reportable segment; I broke the two parts out for better clarity. YOY = year over year.
Data center growth was primarily driven by strong demand for the company's EPYC central processing units (CPUs) and Instinct MI350 series AI-enabling graphics processing units (GPUs). Sequential revenue growth was impressive, up 34% from the second quarter.
Client revenue -- which was once again a quarterly record -- was mainly driven by robust demand for Ryzen desktop CPUs, and a beneficial product mix. Gaming revenue was driven by an increase in semi-custom revenue and strong Radeon gaming GPU demand.
Major recent deals
AMD announced some big news in the quarter and soon after it ended, including major deals with OpenAI, an AI model builder best known for its ChatGPT chatbot, and Oracle.
Under the terms of the huge OpenAI deal announced in early October, AMD will supply 6 gigawatts of its Instinct series GPUs to power OpenAI's next-generation AI infrastructure. And OpenAI plans to buy up to a 10% stake in AMD.
What the CEO had to say
CEO Lisa Su's statement in the earnings release:
We delivered an outstanding quarter, with record revenue and profitability reflecting broad-based demand for our high-performance EPYC and Ryzen processors (both CPUs) and Instinct AI accelerators (GPUs). Our record third-quarter performance and strong fourth-quarter guidance marks a clear step up in our growth trajectory as our expanding compute franchise and rapidly scaling data center AI business drive significant revenue and earnings growth.
Q4 guidance
For the fourth quarter, management guided for:
- Revenue of about $9.6 billion +/- $300 million, which at the midpoint equates to growth of 25% year over year.
- Adjusted gross margin of 54.5%. For context, this metric was 54% in the just-reported third quarter.
This outlook does not include any revenue from Instinct MI308 GPU shipments to China
Going into the release, Wall Street had been modeling for Q4 revenue of $9.2 billion, so AMD's outlook surpassed this expectation.
In short, AMD turned in a very good quarter, particularly given it had no sales of AI chips in China.
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Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Oracle, and Palantir Technologies. The Motley Fool has a disclosure policy.
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