Advanced Micro Devices Inc. reported declining revenue and offered a forecast that came in below Wall Street’s estimates, but its stock rose after the company beat expectations and made optimistic sounds about its artificial intelligence portfolio.

The company reported second-quarter earnings before certain costs such as stock compensation of 58 cents per share, just ahead of Wall Street’s consensus estimate of 57 cents per share. Revenue fell 18%, to $5.36 billion, but that was still above the analyst target of $5.31 billion. Net income for the period came to $27 million, way down from $447 million one year earlier.

The forecast for the third quarter was not great, with AMD saying it expects to do about $5.7 billion in sales, below Wall Street’s call for $5.81 billion. On the other hand, the chipmaker said its data center and embedded business segments will grow on a full-year basis.

Chief Executive Lisa Su (pictured) told analysts on a conference call that the company is expecting a “large ramp in the second half” for its data center business, with most of it likely to occur in the fourth quarter. That would be a turnaround for the chipmaker, whose business has been struggling amid a global decline in personal computer sales. Prior to today, it reported two straight quarters of declining year-over-year revenue.

Still, investors remain hopeful that AMD can continue to grow its business by taking more market share from rival Intel Corp. in the data center market. It has had some success there recently, with Oracle Corp. announcing in June it will incorporate the company’s latest EPYC processors into its cloud infrastructure offering.

AMD is also one of the few companies that offers an alternative to Nvidia Corp.’s high-end graphics processing units, which are used for AI training and inference. During the quarter, it announced a new chip called the Instinct MI300X accelerator, which is specifically designed for generative AI workloads such as ChatGPT.

In an update today, AMD said samples have already been provided to customers and that it expects production to expand by the fourth quarter. An unconfirmed report from June suggests that one of those customers may be Amazon Web Services Inc.

“Our AI engagements increased by more than seven times in the quarter as multiple customers initiated or expanded programs supporting future deployments of Instinct accelerators at scale,” Su said today. “We made strong progress meeting key hardware and software milestones to address the growing customer pull for our data center AI solutions.”

According to Su, the company is also investing more in its AI research and development efforts, focused on a specific strategy that includes AI-specific chips and the software needed to run AI workloads on them. “Our goal is to make this a significant growth driver,” she said.

In addition, AMD hopes AI can also provide a boost to sales of its PC chips. Su said AI will become a significant driver of future PC demand as Microsoft Corp. looks to incorporate generative AI capabilities into software such as Windows and Office.

The Client group could definitely do with a boost. The unit, which includes sales from PC chips, saw its revenue decline by a whopping 54% from a year earlier to just $998 million. AMD noted it was struggling with a “weaker PC market” but said there are signs the situation is improving. “We expect our client segment will grow in the seasonally stronger second half of the year,” Su said.

Sales in the data center segment, which counts server chip sales, also disappointed. Revenue fell 11%, to $1.3 billion. The company noted that some cloud providers had extra inventory during the quarter, and were buying fewer chips as a result. AMD’s gaming segment, which includes GPUs for consoles and gaming PCs, also suffered a decline, with revenue falling 4%, to $1.6 billion.

The embedded segment, which covers less powerful chips for networking and low-powered devices, was the only one to grow during the quarter. Revenue increased 16%, to $1.5 billion, the company said.

Charles King of Pund-IT Inc. said AMD has consistently punched above its weight during Su’s tenure as CEO, stealing market share from much bigger rivals like Intel and Nvidia. “While it has seen marked declines in its gaming, data center and PC segments, its new GPU capabilities and its innovative blending of GPU technology in both PC and server chips means it should have plenty of opportunities ahead as the market for AI solutions evolves and grows,” he said. “Overall, AMD’s and its shareholders’ optimism appears to have a solid foundation.”

Constellation Research Inc. analyst Holger Mueller said AMD did well to consolidate its business, with its revenue staying flat compared to the previous quarter, even if it was down on a year-over-year basis. “While all the talk is about AI, investor’s eyes will be keenly focused on data center revenue going forward,” the analyst explained. “With 600+ cloud instances offering AMD compute, cloud revenue is likely to be the main source of growth in the near term.”

AMD’s stock had gained almost 3% during the regular trading session, and investors apparently liked what they saw in today’s report, as the stock rose a further 2% in the after-hours trading session.

Photo: AMD