How will AMD stock react to Q3 earnings?

Advanced Micro Devices, Inc. (NASDAQ: AMD) is set to release its Q3 2024 earnings on October 29, sparking high anticipation among investors. 

Valued at $252.8 billion, the semiconductor giant has attracted attention with its diverse portfolio of CPUs, GPUs, and adaptive processors. With mixed performance across segments, the stock’s reaction will likely hinge on key growth drivers and the impact of potential headwinds.

Currently, AMD stock trades at $156, reflecting a modest 1% increase over the past six months and a year-to-date (YTD) return of 8%.

AI and datacenter momentum: Expected catalysts for stock upside

AMD’s focus on AI and datacenter markets has been a significant growth catalyst, especially with the impressive performance of its MI300X chip, which has garnered interest from major cloud providers. 

In the second quarter, AMD’s Data Center revenue surged 115% year-over-year to $2.8 billion, driven largely by AI-related sales. This strong performance led AMD to raise its 2024 data center GPU revenue forecast to $4.5 billion, up from an initial $4 billion. 

Given the sustained demand for AI alternatives to Nvidia’s (NASDAQ: NVDA) GPUs, a Q3 earnings beat fueled by data center gains could propel AMD stock higher, following the 4.4% jump it experienced after Q2 earnings.

AMD recently unveiled new products at its “Advancing AI 2024” event, including the MI325X and MI350X GPUs, aimed at competing directly with Nvidia’s top-tier offerings. 

These products are designed to address high-demand AI and data center workloads, potentially positioning AMD as a compelling alternative to Nvidia for AI processing.

Client segment: Potentially boosting consumer market position

AMD’s client segment, which includes its consumer-focused Ryzen processors, remains another focal point. In Q2, the client segment posted a 49% year-over-year growth, driven largely by the Ryzen 8000 series. 

Although the broader PC market experienced a slight decline, AMD’s growth in this segment suggests it may be capturing additional market share. 

If AMD demonstrates sustained growth in the client segment in Q3, especially as vendors stock up on high-demand processors, this could provide further tailwinds for the stock.

However, the client segment is not without challenges, given its sensitivity to fluctuations in the global PC market. A dip in worldwide PC demand as projected by Gartner could dampen growth in this area, though AMD’s expanding market share and product updates may help cushion against broader market headwinds.

Gaming and Embedded segments: Potential headwinds to monitor

While AMD’s AI, data center, and client segments are set for strong growth, the Gaming and Embedded segments face notable challenges. 

In Q2, Gaming segment revenue declined sharply to $648 million, marking a 59% drop year-over-year and a 30% sequential decline, largely due to reduced demand for semi-custom chips. 

Similarly, Embedded segment revenue fell to $861 million, down 41% year-over-year, as customers continued to adjust and normalize inventory levels; however, sequential growth in Embedded was slightly positive at 2%.

Looking ahead, Embedded revenue is likely to continue its year-over-year decline, reflecting softness in specific end markets. 

In the Gaming segment, although Ryzen’s robust performance has supported the client side, mixed signals in the broader PC market create uncertainty around gaming revenue, which depends heavily on consumer demand cycles and discretionary spending. 

These dynamics could pose headwinds for AMD’s overall performance, offsetting gains seen in high-growth segments.

In summary, AMD’s Q3 earnings will likely shape its near-term stock trajectory. Strong results in the AI and data center segments could reassure investors about AMD’s growth potential, especially if data center sales and EPYC adoption continue to expand. 

On the flip side, weaker outcomes in the Gaming and Embedded segments might temper stock gains, particularly if demand challenges persist. Overall, a solid Q3 showing could provide AMD with the momentum needed for further growth, making this earnings report one to watch closely.