AMD stock jumps 7% on earnings as data center revenue nearly doubles

AMD's fourth-quarter revenue forecast surpassed Wall Street estimates on Tuesday, driven by robust demand for its chips as its aggressive strategy to challenge Nvidia's leadership in the AI semiconductor market gains traction. The company's shares surged over 8 percent in after-hours trading, with its stock having more than doubled this year.

Intel shares rose 2 percent, Nvidia stock climbed over 1 percent, and Broadcom advanced 1.2 percent. AMD's data-center revenue nearly doubled in the third quarter, benefiting from AI workloads increasingly moving towards real-world applications, which has propelled demand for its graphics processing units and central processors.

This surge has enabled AMD to seize market share from Intel, which recently forecasted revenue well below estimates, sparking a global sell-off of chip stocks. Analyst Bob O Donnell, from TECHnalysis Research, noted that AMD's numbers are a significant boon for AI infrastructure and to a lesser extent, the PC market. AMD anticipates fourth-quarter revenue of approximately $17 billion, within a 3 percent range, outpacing analysts' average estimate of $16.23 billion.

Adjusted gross margin is expected to be around 55 percent, consistent with estimates, marking a decline from 56 percent in the previous quarter. AMD has accelerated AI product rollouts, shifting from standalone chips to compete with Nvidia's rack-scale systems. The company's flagship Helios rack, featuring its MI455X accelerator and new Venice server chips, is now in production and set for a larger increase in the fourth quarter.

Initially tested at Meta, these systems were the result of a deal in February where AMD agreed to sell up to $60 billion worth of AI chips to Meta over five years, entitling Meta to purchase up to 10 percent of the chip firm. AMD's third-quarter revenue surged 45 percent to $13.38 billion, exceeding estimates of $13.09 billion, with data-center revenue jumping 97 percent to a record $8.55 billion, surpassing the projected $8.20 billion.

Adjusted profit stood at $2.09 per share, surpassing estimates of $1.95. The semiconductor sector is also contending with a global memory shortage, rendering expensive high-bandwidth memory for AI processors scarce as manufacturers strive to ramp up production. AMD's client and gaming segment, encompassing PC chips and console processors, saw a 8 percent drop in third-quarter sales to $3.72 billion, missing estimates of $3.79 billion.

In September, AMD acquired World Labs, a startup developing AI models for 3D environments, for $8.2 billion in stock, expanding its presence in research on physical AI systems.