AMD (AMD) Q3 FY26 Earnings Call Transcript

Operator00:00

Greetings. Welcome to the AMD third quarter 2026 conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator00:14

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I will now turn the conference over to Matt Ramsay, VP, Financial Strategy and IR.

Operator00:17

Thank you, Matt. You may begin.

Matt Ramsay00:31

Thank you and welcome to AMD's third quarter 2026 financial results conference call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides.

Matt Ramsay00:49

If you have not had the chance to review these materials, they can be found on the investor relations page of AMD.com. We will refer primarily to non-GAAP financial measures during today's call. The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website.

Matt Ramsay01:04

Participants on today's conference call include Dr. Lisa Su, our chair and CEO, and Jean Hu, Executive Executive Vice President, CFO, and Treasurer. This is a live call and will be replayed via webcast on our website.

Matt Ramsay01:23

Before we begin, I would like to note that that AMD will participate in the following events with the financial community this quarter. The UBS Technology and AI Conference on Tuesday, December 1st and Barclays 24th Annual Global Global Technology Conference on Wednesday, December 9th.

Matt Ramsay01:46

Today's discussion contains forward-looking statements based on our current beliefs, beliefs, assumptions, and expectations, expectations including forward-looking statements regarding financial projections business and industry trends that speak only as of today and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations.

Matt Ramsay01:58

Please refer to the cautionary statement in our press release for more information on the factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa.

Prepared remarks

Lisa Su02:09

Thank you, Matt. And good afternoon to all those listening today. The third quarter was the largest and most profitable in our history as we began ramping our next generation data center products.

Lisa Su02:19

Revenue increased 45% year over year to 13.4 billion driven by record Epic and Instinct sales and strong embedded growth.

Lisa Su02:37

Earnings per share grew even faster increasing 74% to 2.09 We executed very well in the quarter with Helios production ramping as planned and EPYC adoption expanding across cloud enterprise and super intelligence workloads.

Lisa Su02:50

Data center revenue growth has accelerated sequentially every quarter this year with the segment contributing 64% of total revenue in the third quarter up from 47% 47% just one year ago.

Lisa Su03:00

We expect that acceleration to continue in the fourth quarter driven by increased demand for inference and agentic workloads and the ramp of our newest products.

Lisa Su03:10

Turning to our segments, data center revenue grew 97% year over year to a record 8.5 billion.

Lisa Su03:21

In server, both cloud and enterprise sales more than doubled year over year. We significantly exceeded our previous outlook of more than 80% growth as we gained revenue share.

Lisa Su03:28

Customers deployed Epic across more applications with agentic workloads contributing significant growth.

Lisa Su03:38

In cloud, hyperscalers deployed substantial volumes of EPYC servers in the quarter to run more internal services and expand their public cloud offerings. offerings.

Lisa Su03:49

Turin is now the most widely deployed EPYC generation in the public cloud with more than 540 instance types available globally from the largest providers.

Lisa Su04:00

Cloud providers also added significant EPYC capacity in the quarter for personal and enterprise agents which are quickly becoming the next killer app for CPUs in the cloud.

Lisa Su04:11

Meta's Muse and OpenAI's Dots illustrate how quickly personal agents are growing with more than 10 million people activating Muse agents in the first six weeks.

Lisa Su04:19

Enterprises are moving fast as well putting agents to work across software development supply chain and IT IT operations.

Lisa Su04:31

These agents work continuously and in parallel across applications and enterprise systems adding to accelerator demand while creating a substantial increase in CPU demand.

Lisa Su04:42

Adoption is just starting and we expect demand to grow sharply as agents are deployed more broadly and take on more complex work.

Lisa Su04:49

In head nodes we won major deployments with several of the largest model developers and cloud providers in the quarter which will ramp over the coming quarters.

Lisa Su04:59

Epic's leadership performance and mature ecosystem proven at scale have made it the host CPU of choice for custom accelerators.

Lisa Su05:07

As one example, OpenAI selected Turin EPYC processors as the host CPUs CPUs for its first custom accelerator platforms.

Lisa Su05:24

In enterprise, EPYC server sell-through was a record with strong demand from new and existing customers. We added dozens of first-time EPYC customers in the quarter including large financial services, communications, retail, and healthcare companies.

Lisa Su05:35

Existing customers are also making EPYC their primary compute platform extending adoption from specific workloads to a much larger share of their overall infrastructure.

Lisa Su05:45

We began revenue shipments of Epic Venice processors in the third quarter and the first OEM systems are on track for availability this quarter.

Lisa Su06:04

Early demand is the strongest we have seen for any new Epic generation. Our OEM and ODM partners have committed more than 240 Venice platforms 20% more than Turin and cloud providers are deploying Venice this quarter ahead of instance rollouts planned for early 2027.

Lisa Su06:14

We recently launched Helion, a Venice reference design that enables turnkey EPYC rack scale systems for agentic infrastructure.

Lisa Su06:27

Customers can configure Helion for their workloads from all CPU racks for hyperscalers to enterprise systems combining Venice and Instinct GPUs that can run agents and models together.

Lisa Su06:40

In the all CPU configuration, a single Helion rack has up to 144 Venice processors with nearly 74,000 threads delivering the highest agent density in the industry.

Lisa Su06:48

Every major server OEM and ODM plans to offer Helion with the first systems shipping this quarter.

Lisa Su06:58

Looking more broadly, demand for server compute is accelerating across cloud, enterprise, agentic, and super intelligence infrastructure.

Lisa Su07:13

Epic is the industry's broadest portfolio spanning all of these markets with per socket leadership for cloud and agents per core leadership for enterprise and head nodes and memory and IO options tuned to each workload.

Lisa Su07:35

Venice builds on that that leadership with significantly better performance per watt, performance per core, core, and performance per dollar than any other x86 or ARM server CPU positioning us to gain share and significantly grow our server business as the TAM grows to approximately 220 billion by 2030.

Lisa Su07:48

Turning to our data center AI business, Frontier Labs, hyperscalers, and cloud providers expanded Instinct deployments for inferencing and training driving record revenue.

Lisa Su08:02

We started shipping MI455X in volume in the quarter and lead customers including Anthropic, Meta, Microsoft, OpenAI, and Oracle brought their first Helio racks online quickly.

Lisa Su08:10

Customers are now running their latest models and workloads on Helios and we are seeing very strong performance with the initial deployments.

Lisa Su08:25

We expect Helios deployments to increase substantially in the fourth quarter as production continues to ramp and HPE, Dell, Lenovo, Supermicro, and other OEM and ODM partners begin shipping systems.

Lisa Su08:30

We are very pleased with the overall performance we are seeing at the rack level.

Lisa Su08:44

MI455X leads in compute flops, memory capacity, and scale out bandwidth. And as Helios comes to market, it delivers an even larger lead in memory bandwidth and higher scale up bandwidth than the competition.

Lisa Su08:52

We are working closely with our manufacturing and OEM partners to scale production as customers expand their deployments.

Lisa Su09:09

In supercomputing, Euro HPC selected Instinct MI430X GPUs and 6th gen Epic processors for Lumi AI Europe's next flagship supercomputer planned to come online in the second half of 2027.

Lisa Su09:18

MI430X delivers nearly nine times the double precision performance of the competition, which is critical for scientific simulations.

Lisa Su09:32

As a result, MI430X has now been selected to power next generation systems around the world and we are well positioned to win additional designs as governments and research centers plan their next major investments.

Lisa Su09:47

In software, we launched Rockum 10 with major enhancements for production deployments at scale including faster startup across large GPU clusters and greater resilience for long running workloads.

Lisa Su10:01

Rockum 10 also adds agentic performance tuning with Rockum.ai which profiles workloads, identifies bottlenecks, and applies and validates improvements turning weeks of engineering optimization into hours.

Lisa Su10:19

Customers are also using their own agents to optimize models on our open software stack. For example, Anthropic highlighted that one engineer used Claude to bring up their latest model on Instinct MI355X racks over a single weekend with strong performance.

Lisa Su10:34

Our work with Frontier Labs is already enabling their models to handle complex software development and performance tuning for Instinct and as those capabilities continue to improve the benefits extend to everyone in the AMD ecosystem.

Lisa Su10:47

We announced two acquisitions in the quarter to strengthen our super intelligence portfolio. Talus brings a highly experienced engineering team and specialized silicon built for low latency efficient inference.

Lisa Su10:57

We plan to integrate their technology across our solutions portfolio to address the growing demand for low latency super intelligence applications.

Lisa Su11:14

World labs led by co-founder and CEO Dr. Fei-Fei Li brings a world class research team with expertise in spatial intelligence and models that understand the physical world giving us deeper insight into how frontier models and workloads are evolving.

Lisa Su11:23

Fei-Fei will join AMD as Chief Scientist leading our model research and helping shape our future hardware software and systems roadmaps.

Lisa Su11:29

We expect both acquisitions to close by the end of the year.

Lisa Su11:41

Looking ahead our focus is on execution at scale. The ramps of Venice the MI450 series and Helios are still early and all three are on track to grow significantly.

Lisa Su11:51

We now expect data center segment revenue growth to accelerate in the fourth quarter and full year segment revenue to more than double from 2025.

Lisa Su11:56

Our visibility into 2027 also continues to strengthen.

Lisa Su12:05

Last quarter, we said we expected annual server revenue to grow more than 70% and data center segment revenue to more than double for the year.

Lisa Su12:15

Since then, customers have expanded their EPYC and Instinct deployment plans and we have secured more supply to support that growth.

Lisa Su12:25

We now expect server revenue to double year over year in 2027 and data center AI revenue to grow even faster than we projected 90 days ago.

Lisa Su12:36

As a result, we expect data center to be more than 80% of our total revenue in 2027 and to drive the majority of our revenue and earnings growth.

Lisa Su12:48

Looking further out, customer engagements for MI500 continue to progress very well. Interest is very high as it is another significant leap forward in performance.

Lisa Su12:58

We are working very closely with multiple Frontier Labs to optimize MI500 for their workloads as they plan multi-gigawatt deployments.

Lisa Su13:07

Turning to client and gaming, segment revenue decreased 8% year over year to 3.7 billion.

Lisa Su13:16

In In client, revenue increased 7% year over year to 2.9 billion driven by strong sales of our Ryzen mobile processors.

Lisa Su13:25

Commercial is becoming a larger part of our client business as large enterprises adopt Ryzen Ryzen Pro PCs across their employee base.

Lisa Su13:34

Eight of the 10 largest banks in the world and seven of the 10 largest healthcare and automotive companies now use Ryzen Pro PCs.

Lisa Su13:43

OEMs continue expanding their AMD based commercial lineups from everyday business PCs to high end workstations.

Lisa Su13:53

HP Lenovo and others launched the first commercial notebooks and small form factor desktops featuring our newest Ryzen AI Max Pro 400 series processors.

Lisa Su14:01

These systems deliver workstation class performance and run super intelligence models with up to 300 billion parameters locally.

Lisa Su14:11

Looking at the market, PC sell through slowed late in the quarter as higher memory and component costs weighed on demand.

Lisa Su14:26

We are managing the business accordingly aligning sell in with sell through to keep customer and channel inventory healthy. In 2027, we are planning for PC market unit shipments to decline by a double digit percentage.

Lisa Su14:36

In this environment, we expect to outperform the market as we deliver our Ryzen roadmap and grow our commercial footprint.

Lisa Su14:48

In gaming, revenue declined 40% year over year to 773 million primarily due to lower semi custom sales as expected at this stage of the console cycle.

Lisa Su15:06

Gaming graphics revenue declined year over year while Radeon GPU channel sell through increased sequentially. Beyond gaming, Radeon AI Pro revenue grew significantly from the prior quarter as more developers choose AMD to run and fine tune models locally.

Lisa Su15:17

We expect strong growth for Radeon AI Pro to continue driven by our leadership performance per dollar and an open software stack optimized for the latest open source models.

Lisa Su15:28

Turning to our embedded segment, revenue increased 29% year over year to 1.1 billion, the fourth consecutive quarter of accelerating growth.

Lisa Su15:39

Demand was very strong across all of our end markets led by strong growth with aerospace and defense automotive communications and industrial customers.

Lisa Su15:49

Data center build outs are also driving higher demand for our embedded CPUs and adaptive SOCs in control plane and optical networking applications.

Lisa Su15:58

We remain on track to close more than 18 billion of design wins in 2026 our third consecutive record year.

Lisa Su16:06

Adaptive design wins have increased every year since we acquired Xilinx with embedded x86 and semi custom wins growing even faster.

Lisa Su16:16

As these wins ramp over the next few years we expect our embedded business to deliver strong double digit annual revenue growth and continue outgrowing the market.

Lisa Su16:29

In summary, we delivered an excellent third quarter and expect an even stronger fourth quarter as data center and embedded segment growth more than offsets lower client CPU sales.

Lisa Su16:36

We enter 2027 2027 with the strongest product portfolio in our history and significant customer momentum.

Lisa Su16:48

We have worked across our supply chain to secure the wafers, substrates, advanced packaging, memory, and other key components needed to support much higher growth next year.

Lisa Su17:02

Based on our current visibility, we now expect revenue to grow more than 80% in 2027 which is more than twice the long term financial model we outlined at our financial analyst day last November.

Lisa Su17:18

Data center will be the largest contributor driven by expanding Helios deployments and continued EPYC share gains. We also expect embedded growth to accelerate next year driven by adoption of our adaptive and x86 solutions.

Lisa Su17:34

Beyond 2027 we are increasing R&D investment across our silicon software and systems roadmaps and working closely with our largest customers to support their ambitious infrastructure plans for the next three to five years.

Lisa Su17:43

We are also deepening our collaboration with our supply chain partners and investing alongside them to secure the long term capacity our growth will require.

Lisa Su17:59

Taken together these give us strong confidence in our ability to sustain exceptional revenue growth for years to come with earnings growing even faster. Now I will turn the call over to Jean to provide additional color on our third quarter results.

Lisa Su18:01

Jean?

Jean Hu18:29

Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our financial results and then provide our outlook for the fourth quarter of fiscal 2026. We delivered an outstanding third quarter, revenue increased 45% year over year to a record 13.4 billion exceeding the high end of our guidance driven by our data center segment which nearly doubled year over year.

Jean Hu18:41

Revenue increased 16% sequentially driven by strong growth in the data center and embedded segments partially offset by decline in the client and gaming segment.

Jean Hu18:57

Our data center segment accounted for approximately 64% of total revenue, up from 58% last quarter, underscoring the continued shift in our business mix and its increasing contribution to AMD's growth.

Jean Hu19:07

Gross margin was 56%, up 190 basis point year over year reflecting a richer product mix.

Jean Hu19:21

Operating expenses were 3.6 billion and increase of 29% year over year as we continue to invest in R&D to expand our data center silicon systems and software capabilities.

Jean Hu19:31

Operating income grew 75% year over year to a record 3.9 billion significantly outpacing our revenue growth.

Jean Hu19:42

Operating margin was 29% expanding more than five percentage point year over year underscoring the operating leverage in the business as we scale.

Jean Hu19:55

In the third quarter, we began recognizing the content impact of warrants issued and our previously announced customer agreement as we shipped MI450 series GPUs.

Jean Hu20:15

Our GAAP diluted earnings per share were $1.46 which included 1.1 billion non-cash charge in other income and expense primarily reflecting the increase in our share price and the changes in the estimated probability of meeting the warrant conditions.

Jean Hu20:27

Going forward, this quarterly non-cash fair value adjustment are expect to increase as we and our customers progress under this agreement.

Jean Hu20:40

The amounts will vary each quarter based on AMD's stock price and the other valuation assumptions. These non-cash adjustment will not affect our non-GAAP results or free cash flow.

Jean Hu20:50

Our non-GAAP diluted earnings per share were $2.09. Now turning to our reportable segment, starting with the data center.

Jean Hu21:07

Data center segment revenue was a record of 8.5 billion, up 97% year over year, driven by record server revenue on strong demand for our fifth generation EPYC processors and by record data center AI revenue.

Jean Hu21:13

Highlighted by the launch of our AMD Instinct MI450 series GPUs.

Jean Hu21:25

On a sequential basis, data center revenue increased 27% primarily driven by initial MI450 series sales and strong server revenue growth.

Jean Hu21:44

The data center segment operating income were 2.9 billion up 168% year over year and operating margin increased to 34% compared to 25% a year ago demonstrating strong operating leverage of data center business.

Jean Hu22:01

Client gaming segment revenue was 3.7 billion down 8% year over year due to lower semi customer and graphic sales partially offset by higher demand for the latest generation Ryzen mobile processors.

Jean Hu22:11

In the client business, revenue was 2.9 billion, up 7% year over year driven by higher sales of Ryzen mobile processors.

Jean Hu22:24

Sequentially, client revenue was down 4% as higher memory cost weighted on PC unit demand partially offset by richer mix of high end processors.

Jean Hu22:35

Gaming revenue was 773 million down 40% year over year due to lower semi customer revenue and lower graphics demand.

Jean Hu22:51

Sequentially gaming revenue was essentially flat. client gaming segment operating income was 573 573 million or 15% of revenue compared to 867 million or 21% a year ago.

Jean Hu23:10

Embedded segment revenue was 1.1 billion up 29% year over year and 14% sequentially as demand strengthened across several end market led by growth in aerospace and defense automotive communication and industrial end market.

Jean Hu23:22

Embedded segment operating income was 453 million or 41% of revenue compared to 283 million or 33% a year ago.

Jean Hu23:59

Turning to balance sheet and cash flow. flow. During the quarter, inventory increased approximately 3 billion sequentially to 11.5 billion to fulfill our strong data center demand. we generated 1.2 billion in cash from operating activities of continuing operations free cash flow was 554 million reflecting increased working capital investment and ongoing capital expenditures to secure equipment and capacity for the rapid growth of our data center business.

Jean Hu24:04

Including back-end capacity dedicated to support our data center demand.

Jean Hu24:21

We expect to continue to invest in inventory and capacity to support our strong growth in 2027. At the end of the quarter, cash, cash equivalents and short term investment were 15.8 billion.

Jean Hu24:30

Our total debt was 7.1 billion, including 4.75 billion senior notes offering we completed in August.

Jean Hu24:36

Now turning to our fourth quarter 2026 outlook.

Jean Hu24:56

We expect revenue to be approximately 17 billion plus or minus 3%. The middle point of our guidance represents approximately 66% year over year revenue growth primarily driven by the acceleration of our data center segment.

Jean Hu25:19

Sequentially, we expect revenue to grow by approximately 27% driven by a sharp increase in our data center segment of approximately 50% growth a decline in our client and gaming segment of greater than 20% and a double digit growth in our embedded segment.

Jean Hu25:34

In addition, we expect fourth quarter non-GAAP gross margin to be approximately 55% and we expect non-GAAP operating expenses to be approximately 3.75 billion.

Jean Hu25:42

We expect non-GAAP net interest and other expense to be again of approximately 4 million.

Jean Hu26:00

We expect our non-GAAP effective tax rate to be 13% and diluted share count is expected to be approximately 1.67 billion shares including the estimated impact of closing the Talus Talus and World Labs acquisition in the fourth quarter.

Jean Hu26:06

We're not expecting our fourth quarter share count to be impacted by customer warrants.

Jean Hu26:21

In closing, the third quarter was an outstanding quarter for AMD with record revenue, significant operating margin expansion and earnings growth. reflecting disciplined execution across the business.

Jean Hu26:34

As our data center business continue to scale, we are very well positioned to drive increased profitability and long term shareholder value. With that, I'll turn it back to Matt for the Q&A session.

Matt Ramsay26:43

Thank you very much.

Questions and answers

Operator27:10

Thank you. We will now be conducting a question and answer session we ask that you please limit yourself to one question and one follow-up if you would like to ask a question please press star one on your telephone keypad a confirmation tone will indicate that your line is in the question queue you may press star two if you'd like to remove your question from the queue for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys one moment please while we pull for questions

Operator27:19

And the first question comes from the line of Tom O'Malley with Barclays please proceed with your question

Thomas O'Malley27:50

Hey good evening and thanks for taking my question. Uh Congrats on the great results. I I guess Lisa let's start off with the fact that you're giving some more color into 2027 looks like revenue is growing 80% but the data center component of that is growing much faster where data center is going to be a greater than 80% of your business next year so maybe can you talk about first and foremost like is this backed up by supply whether that be you know wafers packaging substrate memory and then if you look at the demand profile behind that would demand outstrip that supply if you were able to get some more Thank you.

Lisa Su28:09

Yeah, sure, Tom. Thanks for the question. So look, we have a lot of momentum going into the fourth quarter and into 2027. We do see a situation where there is very strong demand. So we see demand across the data center business, across our CPU business, as well as our data center AI business.

Lisa Su28:35

And when you look at the rate and pace of that growth, we've been planning for it for the last several years. So we've absolutely spent a significant amount of time with our customers, planning what, you know, their needs are in terms of their deployments and their deployment schedules, and also with our supply chain partners to ensure that we have the wafers, the substrates, the advanced packaging, the memory, you know, all the other components that go along with it.

Lisa Su29:26

It is true that demand is higher than supply. So we continue to work with our supply chain partners to increase supply. And I do believe that there is a good opportunity for us to do that just given the strong relationships we have throughout the ecosystem but sitting where we are today to be able to say that you know the overall company will grow greater than 80% 80% especially you know the server business will you know approximately double from a fairly high point in 2026 and then the data center AI business we continue to have strong visibility and we see strong demand from our customers and we continue to see also you know good follow through on all of the other aspects of the infrastructure that are needed so overall we're very you know positive about the data center growth into 2027.

Thomas O'Malley29:55

Super helpful. And then just as a follow-up on the, on the client side, you're saying down greater than 20% in the fourth quarter, that's kind of in line with what we've heard from other so far in the, in the market. But if you look at 27, I think something that's difficult is that normally you see seasonality down in Q1 and then you wouldn't get a recovery kind of till Q2, Q3. So maybe talk about like what the longevity of this correction kind of looks like and why you've been able to kind of outperform a bit up until this point and how you see that kind of coming out of this trough into next year. Thanks, Lisa.

Lisa Su30:12

Yeah, sure, Tom. So talking a little bit about, you know, the PC market, the PC market continues to be an important market to us, us I think we were signaling all along in the last couple of calls that we were expecting a sub seasonal second half of the year and that's how it's played out.

Lisa Su30:28

You know our view is this is one of those times when you know component prices go up it affects overall system pricing one would expect the consumer markets to be more sensitive to that and so we have seen a bit of slowdown in the sell through.

Lisa Su31:33

We're just managing the business you know very very prudently and we want to ensure that you know inventory stays healthy throughout the channel and throughout our customers and so our planning assumption for 2027 is that you know the market will be double digit percentage down we will you know certainly focus on the segments where we can add the most value places like enterprise where we continue to be underrepresented premium consumer desktop channel these are really really good markets for us but we are you know planning with the current environment for a down year for 2027 and you know we will you know work through that the good part about it is you know our supply chain is you know quite fungible across you know our PC business and our data center business and so that actually does afford us the ability to you know move supply around as we see these signals in the market and overall as I said earlier we do have more demand than we have supply and so we're continuing to work all of the aspects to increase supply as we go through the next few quarters.

Operator31:45

Thank you. And the next question comes from the line of Vivek Arya with Bank of America Securities. please proceed with your question.

Vivek Arya32:33

Thanks for taking my questions. Lisa, you know, there's a lot of market debate about the financing of data centers and availability of land, power, and shell. Etc. So kind of a two parter, what's the level of confidence right that AMD has that your anchor customers have the financing and the physical infrastructure to support I think it's roughly three gigawatts or so of planned AMD deployments into 27 and then as we look beyond you know many of your competitors are kind of investing in the ecosystem providing residual value guarantees and such and saying there's a lot more fungibility of their products. So does that create kind of a competitive dynamic for AMD? So just curious to hear your perspective on 27 readiness and 28 competitive landscape.

Lisa Su32:36

Sure, Vivek. Thanks for the question.

Lisa Su32:57

So as I said earlier, we're seeing very strong demand from our, you know, lead data center AI customers. I I think, you know, you can see that that there's a strong demand for more compute and MI455 is positioned extremely well when we look at, you know, Venice, MI455, Helios, I think we feel extremely good about the competitiveness.

Lisa Su34:18

We have been planning for this ramp with our customers jointly so we have good visibility into the 2027 2027 as you said land power shells all of those the data center infrastructure and we are very much working hand in hand with our customers so we know where the GPUs are going in terms of which data centers and which locations and all of that stuff. stuff you know going into 2028 and beyond I I guess what I would say is the following look I think we are seeing very strong growth overall I think we have a very strong business we have a very strong balance sheet and from that standpoint our goal is first and foremost we're investing in our growth to support that and that means investing in R&D investing in supply chain and capacity you know investing alongside our partners to ensure that we have the capacity for all of those things that we talked about earlier that are necessary for this type of ramp and then we are selectively investing with our lead partners where we see it's helpful to have you know for example the data center infrastructure identified way in advance and that's multiple years in advance and I think that's the right thing to do to ensure that you know we are you know jointly ensuring that there's the right infrastructure as our new chips become available but we are being selective and strategic in how we do that with the first principle being investing in our growth.

Vivek Arya34:52

Got it. And for my follow up, Lisa, one more on the competitive landscape. landscape. You know, many of your Frontier Lab customers have been working on their custom ASICs and I'm curious, how do they conceptually make the choice between using ASICs versus AMD products? Like Like what determines their allocation? Is it cost per token, power efficiency, software flexibility, time to deployment? Just what are the puts and takes in that decision making and are there workloads where you know using an AMD GPU works better than the alternatives that they have.

Lisa Su34:53

Thanks.

Lisa Su35:11

Sure, Vivek. So look, I think we feel extremely good about where we're positioned in terms of our performance and our total cost of ownership that we're delivering with Helios. That is fundamentally the most important factor when we think about, you know, sort of deployment scale and deployments going forward.

Lisa Su36:12

I think there was a significant investment that we've made in the rack scale systems and ensuring that Helios really ramps nicely, you know, third quarter was the first quarter that we shipped MI455 and Helios racks for revenue I think this is a very major milestone we have a big step up in Q4 we'll continue to ramp throughout 2027 and the key is for us to continue to show that you know TCO advantage across workloads it is true that from a general purpose GPU standpoint that we have more fungibility as you think about you know various workloads that occur there has been also you know very strong co-design so you know beyond the MI450 series we're working on MI500 and MI600 as well to ensure that our technology gets even more let's call it tuned to what the frontier labs need so I think that's those are the key factors in terms of you know deployments choices.

Operator36:21

Thank you. And the next question comes from the line of Joshua Buchalter with TD Cowen. Please proceed with your question.

Joshua Buchalter36:26

Hey guys, thanks for taking my question and congrats on the progress.

Joshua Buchalter36:46

I was wondering if you could give us insight into how we should be thinking about HBM costs impacting your model as the Instinct business ramps. Uh I think investors have been asking how your revenue per gigawatt contribution in the last year or so your outlook has been so consistent in that 15 to 20 billion per gigawatt range given what's going on with HBM pricing.

Joshua Buchalter37:01

Is that because early builds are fairly programmed specific and pricing was agreed upon a long time ago and again as we think about that business longer term you know do you have the ability to pass on these higher input costs even to your big three customers. Thank you.

Lisa Su38:03

Sure, Josh. So the way to think about it is you know as we ramp we have had let's call it long term agreements with some of our suppliers as well as some of our customers but given where the memory market is is and not just the memory market by the way other component costs are you know also seeing some inflationary pressures in the sense of you know as there's more capex that's put into the overall supply chain environment we are you know also working with our customers to include to ensure that you know those costs are shared as we go forward so from my perspective you know back to the question that Vivek had this is all about you know TCO and ensuring that from a tokens per dollar standpoint that we continue to offer you know very strong advantages for choosing you know AMD Instinct and our overall Helios system and even with some of the inflationary pressures that are out there we certainly believe that we are offering you know leading TCO for the AI workloads.

Joshua Buchalter38:39

Thank you, Lisa. Then maybe for Gene, you know, it was good to see OPEX come in light in the third and fourth quarter. It's been a sticking point for investors for a little bit, you know, but know, but I guess given how steep the revenue growth is expected to be in 2027, we're flying a little blind given your, you know, you're kind of at two more than 2x your target model. How should we think about OPEX growth in 27 and you know I guess while I'm in the neighborhood you know do you think you can hold your target gross margin range you know so that 55% floor as we move through the year and Helios continues to ramp thank you

Jean Hu41:26

Yeah Josh thank you for the question on the OPEX as you said we have been investing aggressively what you are seeing is the investment are translating to accelerating revenue growth we're seeing in 2026 we're actually quite pleased with the 2026 our operating leverage we're expanding revenue much faster than OPEX growth which driving the operating margin increase and if you think about the Q4 guide we're guiding a very significant revenue growth more than OPEX that dynamic we believe will carry into 2027 Lisa talked about that we expect the whole company growing more than 80% we should expect OPEX to grow less than the top line revenue growth rate less half less than half of the top line revenue growth rate so so that will drive a very significant operating margin expansion in 2027 going back to gross margin we are actually very happy about where we are with our gross margin in Q3 we are ramping MI450 data center AI business is doing very well actually better than our expectation when we got into the Q3 quarter and in Q4 we're guiding sequentially revenue growing 50% for data center business, it's actually going to be the quarter data center AI business surpass server business. business so we all know there's a margin little bit dilutive to corporate average but the gross margin dollars are increasing very significantly I think looking ahead of 2027 we actually think our data center business will be more than 80% of total company revenue so the mix of data center business is going to drive the company's gross margin significantly the way to think about it is data center AI will continue to ramp through 2027 and the server business is expected to double so quarter over quarter there may be variations because the mix of those business will be a little bit different in addition embedded business is strengthening in 2027 I think that will also help our gross margin overall when you put the whole business model together what you should expect us to do is significant top line revenue growth significant gross profit expansion and OPEX growing

Jean Hu41:35

Revenue growth which will result in very significant operating margin expansion and profitability expansion.

Operator41:47

Thank you. And the next question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.

Timothy Arcuri42:22

Thanks a lot. Um Lisa I'm wondering if you can break down a little bit how data center is going to you know look like next year you did revise server CPU up from up 70 to up more than a 100% but you're not being super specific about you know data center AI so is the right way to think about it that the GPU business will still be bigger in dollars than the server CPU business but not much is that the right way to think about the split and then how to think about the like shape of the year I know that the you know GPU business is lumpy but I imagine it's probably pretty you know ratable to the year is that kind of fair to think thanks

Lisa Su42:34

Yeah Tim maybe let me break down a couple things. So first of all we think 2027 is going to be a very strong momentum year for both the CPU business as well as the data center AI business.

Lisa Su43:12

And you know when we gave you some of the markers you should just consider them markers right. So we've said the overall company will grow greater than 80% and for the data center CPU business we will about double and for the data center AI business it will significantly more than double and from that standpoint you should expect that the data center AI business continues to be as Jean just said you know Q4 is the first quarter where the data center AI business will cross over in terms of size compared to the CPU business and we would expect both businesses to grow nicely throughout the year.

Lisa Su43:20

So hopefully that gives you a bit of shape as we go through the year.

Timothy Arcuri43:36

Thanks a lot. And then Gene, I guess can you help us on the warrants how are they going to layer into the year any sort of like you know guardrails you can give us on sort of how to you know roll that that into our model through the year and into 2027 thanks

Jean Hu45:13

Yeah, thanks for the question. I think the simple way to think about it is there are three parts for the warrant. The first one is you know we report net revenue the Q3 revenue Q4 guide and whenever we talk about the revenue it's always net revenue which already incorporated the warrant revenue reduction piece which is determined at the grant date of fair value. so that one you should not worry about it it's always incorporated in our revenue whenever we talk about the revenue the second piece is probably you are asking is the share count the way to think about it is the share count only come into diluted share once all the vesting conditions and the exercising conditions are met by our customers that means you know the shipment need to be there and some commercial conditions need to be met we are going to provide the guidance in 2027 to give you clear guidance when we believe the share vesting and exercising conditions are met that is something we'll provide transparency once we get into 2027 the last piece is it's a non-cash charge quarterly non-cash charge which is a remeasurement of fair value that actually does not impact our non-GAAP financial results and free cash flow so on the share count just wait for us to provide you clear guidance when we get there

Operator45:24

Thank you. And the next question comes from the line of CJ Muse with Cantor Fitzgerald. Please proceed with your question.

CJ Muse45:47

Yeah, good afternoon. Thank you for taking the question. I guess first question on the server CPU side, um you know you've obviously taking your outlook higher I'm curious how we should be thinking about units versus mix including higher core count as well as higher ASPs ASPs associated with Venice is there a way to you know break that down to help us understand that 100% growth

Lisa Su46:14

Sure CJ so on the server CPU side when we talk about 100% growth you should imagine that we are definitely shipping significantly more units in that of course some of those units have higher core counts as we go into Venice but I would say the growth in revenue is mostly in units and core count and less so in ASPs although there are some there's an ASP uplift as we increase core count

CJ Muse46:38

Great, Great, thanks. And I guess as a follow-up, just to button down one Q seasonality, you know, based on what you said tonight, I'm interpreting that we should see kind of normal client and gaming down seasonally in Q1, kind of ratable data center, you know, above December and I guess as part of that any sort of vision for how to think about embedded.

Lisa Su47:02

For the embedded business, typically there's seasonality we do see overall when we look at the 2027 for the whole year embedded business is actually going to grow significantly and also strengthening through the year but typically Q1 actually there's some seasonality for embedded business.

Operator47:13

Thank you and the next question comes from the line of Stacy Rasgon with Bernstein Research please proceed with your question.

Stacy Rasgon47:41

Hey, guys, thanks for taking my questions. Um I was wondering I know you said that you crossover for GPU versus CPU in Q4 within the context of that 50% guide I was wondering if you could help us with the magnitude of that crossover is it just barely there or like is it like significantly higher I'm just trying to get the sizing in my head in terms of the entrance rate into next year

Jean Hu48:24

Yeah, hi Stacy. Maybe I'll give you some color, right? The way to think about it is if you think about the MI450 ramp, it's very very significant step up sequentially from Q3 to Q4. Q4 and that really compared to server side, you know, server is growing really nicely, strongly, but the ramp of data center AI which surpass the server in Q4 that is very significant step up I think the way you know server business of course is very strong but the data center AI will be much higher than server business in Q4

Stacy Rasgon48:27

In terms of dollars?

Jean Hu48:29

Yeah in terms of dollars yeah

Stacy Rasgon48:51

Okay great and thanks and for my follow up um Gene there were some questions earlier about gross margins next year I I wasn't exactly quite sure how to interpret your answer. um in terms of the gross margins next year relative I guess to the Q4 rate do you think you could give us some color some highlights on like a good entrance rate and a good exit rate for gross margins in 2027?

Jean Hu48:54

I think

Jean Hu48:56

The ramps of the different products and everything that are happening.

Jean Hu49:16

Yeah, Stacy, the reason we're not able to provide you quarter over quarter, it's really because, because when you think about the data center mix, it's primary driver in 2027 when you have a data center business revenue is more than 80% of the total company business.

Jean Hu49:49

And then within data center the increasing part is you have a data center AI business continue to ramp significantly on the server side we did mention Lisa mentioned that we're going to double in 2027 of course we also know the supply constraint environment and Lisa also mentioned that we're working with our suppliers to ensure we get more supplies so the mix between those two business actually determine what the company's gross margin will be.

Jean Hu50:10

Right now, I actually don't have that visibility. I think we hope both business are going to do do great and we know they're going to both doing great. Q4 actually is a good benchmark to think about it is because Q4 data center AI business is much higher than CPU business.

Jean Hu50:22

So I think that give you some idea at that benchmark then in 2027 different quarter could be different there could be variation there.

Operator50:32

Thank you and the next question comes from the line of Joe Moore with Morgan Stanley please proceed with your question.

Joseph Moore50:54

Great thank you. Um we've heard quite a bit of positive feedback on the Helion racks and I wonder if you could talk a little bit about that in the CPU only version of that what's different for sort of these agentic workloads versus a traditional rack and then do you anticipate an attach rate of the GPU blade in a lot of these.

Lisa Su51:11

Sure, Joe. Yeah, there is quite a bit of positive excitement around the Helion racks. And I think the main point there is these agentic racks, they really want to be optimized for the environment that they're in.

Lisa Su52:03

So if they are in, let's call it hyperscaler or large cloud racks, you know, you're going to have them in all CPU configurations. It's going to be quite dense. dense. You know, Venice is the from a performance per socket standpoint is the best in the industry and so that will translate into a very very strong agentic rack if you fully populate it with CPUs but in enterprise areas you will also see the opportunity to mix CPUs and GPUs and it just allows people to really optimize for the workloads that they're in and it is you know we have contributed to OCP so it's a you know fully open rack and I think that is viewed as a positive and from that standpoint we've gotten very positive feedback from both you know OEMs and ODMs as well as customers.

Joseph Moore52:15

Okay, thank you. And if I could follow up, the 100% growth in server, do you think you're meeting demand at that level or do you think you still have kind of a shortage condition through all of next year?

Lisa Su53:29

Well, Joe, for us to grow that amount, we're meeting a lot of demand. And, you know, know, when you look at when we talked about the TAM growing, let's call it, you know, about 50% 50% CAGR over the next three or four years, you know we saw growth in sort of three areas, right? So traditional cloud and enterprise you know agentic CPUs and agentic workloads and head nodes we believe we're gaining share in each one of those segments as we give you that forecast of you know roughly 100% I do believe there's more demand and we are actively working with our supply chain partners to satisfy additional demand you know obviously we also have to make sure that the squared sets are there and DDR5 and all of the other components are there but my view is we are taking a big step up in terms of the demand forecast from our customers I'm excited about the fact that our demand is broad based so it is you know really virtually across every customer in terms of they're expansion of their footprint with AMD and so that's a positive and we're going to continue to work on increasing supply to meet additional demand as it comes to fruition.

Matt Ramsay53:39

John, I'm actually going to ask you to have one more caller join us please I think we have time for one more questioner thank you.

Operator53:48

Thank you and the final question comes from the line of Jim Schneider Schneider with Goldman Sachs please proceed with your question

Operator53:55

Hello Jim your line is now live

Operator54:07

Okay our final question comes from the line of Harsh Kumar with BMO Capital Markets please proceed with your question

Unidentified speaker54:23

Yeah, hey Lisa, question is on Helios. So you're one of two companies shipping complete racks. Can I ask you about what your share aspirations is and the reason why I'm asking is is you've done a wonderful job in servers, taking share from basically a very you know difficult competitor.

Unidentified speaker54:34

And also the second part of that question is do you have aspirations to address the enterprise market with this with the Helios rack in the setup and then I have a follow-up.

Lisa Su55:42

Sure, Harsh. So look, we're very happy with the progress that we've made with Helios. I think this is a significant rack scale solutions are significant R&D efforts I think Helios has ramped very nicely we saw a very a good initial quarter in Q3 we're ramping nicely into Q4 and into 2027 you know our aspirations are to be a you know a very significant compute supplier to our largest customers both Frontier Labs as well as hyperscalers and from that standpoint the focus on Helios MI450 ramp is very much on our minds for Q4 and 2027 but we're in very active dialogues with our largest customers on MI500 and MI600 and beyond and you know our aspirations are to continue to have a larger and larger piece of you know their you know compute needs and from everything that we see demand continues to go up so I think that's you know the overall view on Helios was there another part of that question oh enterprise

Unidentified speaker55:44

The enterprise yeah

Lisa Su56:35

Sure. Yes, certainly. Um I think we continue to see you know although enterprise is developing let's call it a little bit slower than the largest frontier labs and hyperscalers we do believe that the enterprise business is quite important we have made a lot of progress in enterprise CPUs many of our enterprise customers are actually asking for our advice as to you know how to deploy AI and how to ensure that you know they're deploying it as efficiently as possible when you think about you know both you know on-prem as well as cloud deployments so we are expanding our portfolio we've introduced some enterprise specific GPUs and that will be a place where we would like to grow our footprint to again be a very strategic supplier to our largest enterprise customers.

Unidentified speaker56:59

Understood. And and my follow-up is on the client side, um you know historically you've done a great job managing this business through situations like this. uh what would be your share keep strategy if your chief competitor was to cut ASPs would you try to match them or would you be you know would you have to just gauge the situation as it goes just be curious about how you're going to manage this.

Lisa Su57:43

Yeah, I think, Harsh, our view is, you know, PCs are an important market for us in the standpoint of, you know, I'm a big believer in end-to-end AI deployment so from cloud to edge to client and you know we have a unique portfolio in that fashion that being the case I I think we're always quite disciplined in how we manage you know our focus has really been on the most the highest value and most profitable segments of the PC market enterprise premium consumer desktop channel these are places that we do very well we you know do recognize that there's a good amount of volatility in the low end of the market and that's the place where we have the least exposure frankly to that portion of the market.

Matt Ramsay57:57

Alright thank you John for organizing the Q&A thank you everybody for joining our call we really appreciate you spending some time with AMD and thank you very much for your questions and your attention let John go ahead and close the call thank you very much

Operator58:06

Thank you Matt and ladies and gentlemen thank you for your participation this does conclude today's teleconference you may disconnect your lines at this time and have a wonderful day