AMD's Q2 earnings impress, but stock falls as Nvidia's AI advancements overshadow gains #
Advanced Micro Devices (AMD) stock price fell 8.6% during premarket hours on Wednesday despite posting a solid Q2 earnings and revenue beat. Overall, quarterly revenue rose to $11.53 billion year-over-year from $7.68 billion as adjusted EPS surged to $1.66 from $0.48 a year earlier. The company also posted in-line Q3 guidance. It expects $13 billion in revenue, plus or minus $300 million.
However, the pressure on the stock could be attributed to a 33% year-over-year decline in gaming business revenue to $779 million from $1.12 billion. At the same time, capex surged during the quarter to $808 million, nearly tripling from $282 million a year earlier. Note that capex in Q2 nearly doubled sequentially from $389 million in Q1.
Free cash flow also markedly declined to $1.56 billion in Q2 compared with $2.57 billion in the preceding quarter. Meanwhile, total current liabilities skyrocketed to $12.08 billion, up from $9.46 billion in the prior year quarter.
Surging capex coincides with AMD CEO Lisa Su's attributing the better-than-expected Q2 results to AI driving major demand expansion for compute across all end-markets, with its leading portfolio positioned to capitalise on this opportunity for considerable EPS growth in the coming years.
AMD CFO Jean Hu had stated in the earnings release that the 50% revenue growth in Q2 was primarily driven by strength in the company's data centre business, which is expected to further accelerate in H2.
Another reason for the stock price action could be Su's comments on AMD's PC business. 'Our first half performance has been very strong, and although we are expecting that the market will decline in the second half, the market has actually held up better than most people would have thought,' according to the CEO.
AMD Rival Nvidia Receives Musk's Ultimate Commitment #
More importantly, the sentiment around AMD's rival Nvidia became overwhelmingly positive after Musk declared that SpaceX is committed to using Nvidia GPUs exclusively because they are simply the best. He also reposted Nvidia and SpaceX's official tweets about the joint development of the Starmind AI1 satellite compute payload using Nvidia's Rubin GPUs and Vera CPUs.
Although the news failed to lift the struggling SpaceX stock after the company posted a Q2 loss and a much higher capex driven by AI projects, Nvidia shares rose during pre-market hours on Wednesday to 1.9%.
The SpaceX-Nvidia deal could explain why the AMD stock price fell sharply despite a Q2 beat, as investors look beyond traditional financial metrics to gauge if the company is growing fast enough to challenge Nvidia's AI infrastructure domination.
Despite the mixed investor sentiment, Morgan Stanley boosted its AMD 12-month stock price target to $465 per share from $410 and reiterated its equalweight rating. The brokerage cited improved earnings estimates for 2027, while noting that AMD's CPU business shows strength and its Helios product is positioned to gain market share next year.
Analysts added that AMD is issuing more than $15 billion in warrants for every $15 billion to $20 billion in revenue from two clients, which could potentially stimulate customer interest but represent a cost that would eliminate profitability if treated as a cash expense, potentially impacting earnings over the next three to four years.
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