Advanced Micro Devices (AMD) shares climbed more than 7% on Tuesday as investors positioned for the company's second-quarter earnings report, due after the market close. The rally extends a recovery from a recent pullback, following a volatile period for semiconductor stocks.
AMD's stock had surged over 190% between late March and the end of June, before retreating roughly 26% through July 29 as investors reassessed valuations across the chip sector. Tuesday's move suggests renewed optimism ahead of the earnings release.
AI data center business takes center stage
While AMD continues to generate revenue from personal computer and gaming chips, the market's attention is increasingly on its AI data center segment. The company has expanded rapidly in this area, growing from $3.7 billion in data center revenue in 2021 to a projected $6.5 billion in the second quarter alone.
Wall Street expects AMD to report second-quarter revenue of $11.3 billion, up 47% year-over-year, with adjusted earnings per share of $1.62, compared to 48 cents in the prior-year period. Analysts also anticipate an adjusted operating margin of 27%.
The year-over-year comparison is impacted by an $800 million inventory charge recorded last year after changes to US export controls disrupted planned chip sales to China.
AMD has also strengthened its position in server processors, where it claims to have captured about 40% of the market and is targeting a 50% share. The company expects the server CPU market to reach approximately $220 billion annually by 2030, driven by expanding AI infrastructure demand. Competitors, including Intel, Arm, Nvidia, and Amazon, have also pointed to growing server processor demand this year.
Helios rollout under scrutiny
Although Nvidia remains the dominant supplier of AI accelerators, AMD has continued narrowing the technology gap. At its recent Advancing AI conference, the company unveiled its Helios AI servers, which integrate AMD graphics processors, central processors, and networking chips into a unified platform supported by its software ecosystem. This approach mirrors Nvidia's tightly integrated AI infrastructure strategy.
AMD has said Helios is scheduled to begin shipping to its first major customers, Meta Platforms and OpenAI, before the end of the current quarter. As part of those agreements, AMD granted Meta and OpenAI performance-based warrants to purchase up to 160 million shares each, with vesting tied to deployment milestones.
Guidance expected to drive market reaction
Analysts expect AMD's earnings outlook to be more important than its reported quarterly results. Historically, AMD shares have experienced significant post-earnings volatility, with the stock averaging moves of roughly 16.5%—either higher or lower—during the month following earnings announcements.
Benchmark reiterated its Buy rating and $685 price target on AMD ahead of the report. Analyst Cody Acree expects second-quarter results to come in broadly in line with consensus forecasts, projecting revenue of $11.28 billion and adjusted earnings per share of $1.63, compared with Wall Street estimates of $11.31 billion and $1.62, respectively.
For the third quarter, Benchmark forecasts revenue of $12.49 billion and adjusted earnings per share of $1.87, broadly matching consensus expectations. According to Benchmark, the earnings call will be judged primarily on management's guidance for the September quarter, gross margin expectations, and the timing of the Helios rollout, with those factors likely to determine the market's reaction more than the second-quarter results themselves.
Investors are also watching broader AI-related earnings, as seen in the recent AI-driven rally and the analyst optimism on Marvell. The semiconductor sector remains sensitive to AI spending trends, and AMD's guidance will be a key barometer for the industry.
This article is for informational purposes only and does not constitute financial advice.
