Advanced Micro Devices (NASDAQ:AMD) stock is a buy after its second quarter (Q2) 2024 earnings. The company posted strong financial results, surpassing revenue expectations. The driving force was its record Data Center segment revenue and accelerated AI growth. Moreover, its Data Center segment revenue hit a record, driven by solid demand for Instinct GPUs and EPYC CPUs. The primary growth driver was client segment revenue boosted by Ryzen processors.
Certainly, AMD has a lead in AI and data center solutions that points to its solid growth potential. AMD has made large strategic investments in AI and data center technologies that are paying off. Additionally, AMD has an expanded Instinct accelerator roadmap. This accelerator is planned for availability in the fourth quarter (Q4) of 2024, promising leadership memory capacity and compute performance. Further, the company expanded its AI solutions portfolio with a new product line.
In short, AMD’s AI business is accelerating, creating significant growth opportunities. Finally, the outlook for the third quarter (Q3) of 2024 is positive, pointing to a progressive performance that makes AMD stock a solid buy.
Solid Q2 2024 Performance and Rapid Growth
The year-over-year (YOY) and sequential revenue trends underscore AMD’s growth momentum. Compared to Q2 2023, revenue increased by 9%. Sequentially, revenue rose by 7% from Q1 2024. This consistent growth reflects AMD’s strong market demand and competitive positioning.
Moreover, Gross profit also showed impressive growth. YOY, gross profit increased by 16%. Sequentially, it rose by 8%. These trends indicate efficient cost management and increasing product value. As a result, AMD’s gross margin expanded by 3 percentage points YOY, from 50% to 53%. Sequentially, the gross margin increased by 1 percentage point from 52%. This improvement in gross margin highlights AMD’s capability to maintain profitability despite potential cost pressures.
Further, Operating income experienced significant growth, reflecting AMD’s effective cost control and revenue generation. YOY, operating income increased by 18%. Sequentially, it rose by 12%. The operating margin improved by 2 percentage points YOY, reaching 22%. Finally, Net income substantially increased, demonstrating AMD’s strong financial performance. YOY, net income rose by 19%. Sequentially, it increased by 11%. This growth in net income underscores AMD’s ability to convert revenue into profit effectively.
Overall, diluted EPS also reflected this upward trend. YOY, diluted EPS increased by 19%, from $0.58 to $0.69. Sequentially, it rose by 11%, from $0.62, indicating a strong basis for AMD stock’s market value creation.
Sharp AI and Strategic Advancements
AMD stock is attached with an optimistic outlook for Q3 2024. The company may hit a revenue near $6.7 billion, representing YOY growth of 16% and sequential growth of 15%. At the bottom line, the gross margin is expected to be around 53.5%. On the product side, AMD is accelerating its AI roadmap to deliver an annual cadence of AI accelerators. The upcoming Instinct MI325X, planned for later this year, will offer more peak computing performance than competitive offerings. The MI350 series is expected in 2025, promising a massive performance increase against earlier versions.
Certainly, AMD is enhancing its AI capabilities through strategic acquisitions and investments. The company recently announced an agreement to acquire Silo AI, Europe’s largest private AI lab. In short, the acquisition will expand AMD’s AI solution capabilities for large enterprise customers. Over the last 12 months, AMD has invested over $125 million across a dozen AI companies to strengthen its AI ecosystem.
Moreover, AMD is building strong design win momentum in the embedded segment. Design wins in the year’s first half increased by over 40% from the prior year, totaling over $7 billion. This growth includes multiple triple-digit million-dollar wins combining AMD’s adaptive and x86 compute products.
All Performance Is Not Goodish But Will Be
Despite these positive developments, there are potential counterarguments. The decline in gaming and embedded segment revenues is a concern. The gaming segment revenue decreased 59% YOY, and the embedded segment revenue fell 41% YOY. These declines could impact AMD’s overall growth. However, the strong performance in the Data Center and Client segments offset these declines.
Above all, AMD’s strategic advancements are driving its growth. The company’s leadership in AI and data center solutions is noteworthy. Investors should consider AMD’s potential for continued growth. The company’s strong financial performance and strategic advancements make AMD stock a must-buy. However, one should keep scanning AMD’s potential for continued growth in the coming quarters.
As of this writing, Yiannis Zourmpanos held a long position in AMD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
