+ Sequential profitability improvements. Gross margin expanded 160bps QoQ with operating loss narrowing to US$20mn from US$145mn in 1Q23. Gross margin expansion was mainly due to lower acquisition-related amortization, while operating margin improvement was driven by Client business negative operating margin decreasing to -7% from -23% in 1Q23. AMD guided for the Client segment to return to profitability in 3Q23e as PC market condition improves while also benefitting from the higher operating leverage due to stronger seasonality.
+ Strong customer interest in AI product. AMD continues to see expansion in AI deployments. The company indicated that there is strong customer interest in its Instinct MI300 data centre accelerators that are set to ramp in 4Q23 as AI engagements with top cloud providers and large enterprises grew by 7x QoQ. It also said that some customers have initiated or expanded their programs to support future deployments of AMD MI250 and MI300 at scale, with expectations of early deployments in 1H24 and more volume in 2H24. On the CPU side, the adoption of the 4th generation EPYC CPU accelerated with revenue almost doubling QoQ as cloud providers expanded their deployments. In total, there are >670 AMD-powered public cloud instances, up from 640 in 1Q23, and AMD expects this to grow by 30% to ~900 by end of 2023.
– Data Centre revenue guidance below our forecast. AMD guided for a high-single-digit YoY revenue growth for its Data Centre segment for FY23e. This is below our forecast of double-digit growth for the business despite the company expecting a 50% HoH (half on half) growth, particularly in 4Q23e. The lower-than-expected increase is due to some cloud customers continuing to see elevated inventories and optimizing their CAPEX while enterprise customers remaining cautious with their new deployments.