u/GanacheNegative1988

Something caught my attention when working on the AMD Q1 2026 ER call transcript yesterday. In Lisa's prepared remarks prior to Q&A, she listed off new models they now have Zero Day support for.

>We also expanded day zero support for the leading open models, including the latest Google Gemma 4 family, Qwen, Kimi, and others, enabling customers to deploy new models quickly with optimized performance.

She lead with the new Gemma 4 model, and not in alphabetical order. She also prefix that with Google to be sure we understood. She didn't prefix Qwen with Alibaba or Kimi Moonshot, both Chinese companies. She's keen here to keep the focus on the US technology ramp. But what's also interesting here is that Gemma 4 is a model that Google is strategically positioning in the world to compete at the edge, off line and on premises. Gemma is an open weight model that anybody can use and build upon. It's US technology and less of a risk of having your model deemed a security risk after you've built your whole stack ontop of it. It's a tool you engineer your entire internal architecture around with significantly less risk, from a western company perspective, which is ton of the Enterprise market.

Google has both Gemini and Gemma. They are similar but Gemini is Google's cloud service while Gemma is that one you can download and use in your products, on your client devices and in your phone. It becomes an easy tie in from on premise developed applications to ones who push into the cloud as a GCS customer. So here's where I see Google finally going full hog on AMD Instinct for Gemini. Perhaps MI450 is too soon or supply is too tight for the 2026 lead ramp.

When you start understanding the needs of these agentic edge workflows and interacting with cloud-based apis, security permission, regulations needs, oversight... the need for architecture that blends the compute together the way AMD has architected with these significant goals in mind, it's hard not to see it once you do and it's unavailable from any other source. I think Google and AMD have been working on this for a long time and Lisa finally dropped the big Clue!

I think we will get the Google announcement in July for a 2027 adoptions, probably both MI450 and MI500.

AMD Q1 2026 Earning Call Quarter Ended Mar 28, 2026, May 05, 2026 Transcript

Operator: Greetings and welcome to the AMD first quarter 2026 conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded.

I will now turn the conference over to Matt Ramsey, Vice President of Financial Strategy and IR.

Thank you, Matt.

You may begin.

Matt Ramsay: Thank you, and welcome to AMD's first quarter 2026 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had a chance to review these materials, they can be found on the investor relations page of amd.com.

We will refer primarily to non-GAAP financial measures during today's call.

The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website. Participants on today's conference call are Dr. Lisa Su, our chair and CEO, and Jean Hu, Executive Vice President, CFO, and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin the call, I would like to note that Jean Hu will present at the Bank of America Global TMT Conference on Tuesday, June 2nd in San Francisco. Today's discussion contains forward-looking statements based on current beliefs, assumptions, and expectations. Speak only as of today and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to our cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa.

Lisa Su: Thank you, Matt, and good afternoon to all those listening in today.

We delivered an outstanding start to the year, driven by accelerating demand for AI infrastructure across our portfolio. Growth was broad-based, with every segment increasing year-over-year, led by 57% data center revenue growth. First quarter revenue increased 38% year-over-year to $10.3 billion. Earnings grew more than 40%, and free cash flow more than tripled to a record $2.6 billion, driven by significantly higher sales of EPYC CPUs, Instinct GPUs, and Ryzen processors. These results mark a clear inflection in our growth trajectory and a structural shift in our business. Data center is now the primary driver of our revenue and earnings growth.

And as AI adoption scales, demand is increasing not only for accelerators, but also for the high performance CPUs that power and orchestrate those workloads. Turning to our segments, Data Center revenue increased 57% year over year to a record $5.8 billion, led by strong demand for our EPYC CPUs and Instinct GPUs. In server, we delivered our fourth consecutive quarter of record server CPU revenue. Revenue increased more than 50% year-over-year, with sales to both cloud and enterprise customers each growing more than 50%.

Share gains accelerated year over year, reflecting the ramp of 5th Gen EPYC Turin CPUs and continued strength of 4th Gen EPYC processors across a wide range of workloads.

In cloud, AI was the primary driver of growth in the quarter, as every major cloud provider expanded their EPYC footprint to support a broad range of AI workloads from general-purpose compute and data processing to head nodes for accelerators and emerging agentic applications. EPYC powered cloud instances increased nearly 50% year over year to more than 1600 with instances optimized for virtually every enterprise workload and expanded availability across the largest global cloud providers.

In enterprise, demand accelerated with record revenue and record sell-through in the quarter.

We expanded our customer base with new wins across financial services, healthcare, industrial, and digital infrastructure companies, while also building momentum with mid-market and SMB customers. We are well positioned to continue gaining share as more enterprises standardize on EPYC across on-prem and hybrid environments based on our leadership performance and TCO.

Looking ahead, our 6th Gen EPYC Venice Benes processor, built on our Zen 6 architecture and 2 nanometer process technology, is designed to extend our leadership across cloud, enterprise, and AI workloads. The Venice family spans a broad set of CPUs optimized for throughput, performance per watt, and performance per dollar, including Verano, our first EPYC CPU purpose-built for AI infrastructure. Across the portfolio, Venice widens our competitive advantage, delivering substantially higher performance per socket and per watt versus competitive x86 offerings, and more than 2x throughput per socket versus leading ARM-based AI solutions. Customer demand is very strong, with more customers validating and ramping platforms at this stage than with any prior EPYC generation, and we remain on track to launch Venice later this year.

Looking more broadly, we are seeing a meaningful acceleration in customer demand driven by the rapid scaling of AI workloads across both cloud and enterprise. Inferencing and agentic AI are increasing the need for server CPU compute, as these workloads require additional CPU processing for orchestration, data movement, and parallel execution in addition to serving as the head nodes for GPUs and accelerators.

As a result, we are seeing both stronger near-term demand and deeper engagement with customers on long-term capacity planning. At our Financial Analyst Day in November, we outlined a server CPU market growing at approximately 18% annually over the next three to five years. Based on the demand signals we are seeing today and the structural increase in CPU compute requirements driven by agentic AI, we now expect the server CPU TAM to grow at greater than 35% annually, reaching over $120 billion by 2030.

In response to this demand, we are working closely with our supply chain partners to meaningfully increase our wafer and back-end capacities to support this growth. As a result, we now expect server CPU revenue to grow by more than 70% year-over-year in the second quarter, with robust growth continuing through the second half of 2026 and into 2027 as we ramp our next generation EPYC processors.

Now turning to our data center AI business, revenue grew by a significant double-digit percentage year over year as adoption of Instinct accelerates across cloud, enterprise, sovereign, and supercomputing customers. We're seeing strong momentum as customers move from pilots to large-scale production deployments, particularly in inference, where our leadership memory capacity and bandwidth are key advantages. This momentum is driving deeper, long-term customer engagements, including large-scale, multi-generation deployments.

A key example is our expanded strategic partnership with Meta to deploy up to 6 gigawatts of AMD Instinct GPUs spanning several product generations. Our agreement includes a custom GPU accelerator based on our MI450 architecture, co-designed to support Meta's next-generation AI workloads. Shipments are on track to begin in the second half of the year, leveraging our Helios Rack Scale architecture, which integrates Instinct GPUs with EPYC Venice CPUs to deliver fully optimized, high-performance AI infrastructure. Together with our previously announced OpenAI partnership, these engagements position AMD as a core partner to the world's largest AI infrastructure builders with deep co-engineering relationships and multi-year visibility into large-scale deployments.

More broadly, Instinct adoption continues to expand across AI-native and enterprise customers for both training and inference workloads. Existing partners are expanding Instinct across a broader set of workloads, while a growing number of new partners are deploying production AI workloads on Instinct, highlighting the maturity of our hardware and software stack.

On the software front, we continue to make strong progress with ROCm, improving performance, scalability, and enabling customers to reach production faster. In our latest MLPerf results, MI355X delivered strong competitive performance across the full suite, with leadership results in multiple categories.

We also expanded day zero support for the leading open models, including the latest Google Gemma 4 family, Qwen, Kimi, and others, enabling customers to deploy new models quickly with optimized performance.

To build on this momentum, we have significantly accelerated our ROCm development cadence through increased software investments and agent-based coding workflows, enabling faster performance improvements and more rapid deployment of new capabilities.

Looking ahead, customer pull for Helios is very strong, driven by our leadership performance, memory bandwidth, and scale-out capacity. Helios development is progressing well, with strong execution across silicon, software, and systems as we advance through key milestones. We have begun sampling MI450 series GPUs to lead customers and remain on track to ramp Helios production shipments in the second half of the year. As we approach production, demand for MI450 series GPUs continues to strengthen, with lead customer forecasts now exceeding our initial plans, and a growing number of new customers engaging on large-scale deployments, including additional multi-gigawatt opportunities. With this expanded visibility, we have strong and increasing confidence in our ability to deliver tens of billions of dollars in annual data center AI revenue in 2027 and to exceed our long-term growth target of greater than 80% in the coming years.

I look forward to sharing more on our next generation Instinct GPUs, EPYC processors, Helios Rack Scale platform, and our growing customer engagements at our Advancing AI event in July.

Turning to client and gaming, segment revenue increased 23% year-over-year to $3.6 billion. In client, revenue grew 26% year-over-year to $2.9 billion, led by strong sales of our latest Ryzen processors and continued share gains across consumer and commercial markets. In desktop, we strengthened our Ryzen lineup, including our latest X3D processors that deliver leadership performance across gaming, content creation, and professional workloads.

We also introduced the Ryzen AI 400 series and Ryzen AI Pro 400 series desktop CPUs, sending our AI PC offerings across both consumer and commercial systems. In mobile, we delivered strong growth driven by a richer product mix as Ryzen 400 mobile PC shipments ramped and commercial adoption increased. Commercial was a key highlight in the quarter, with sell-through of Ryzen Pro PCs increasing more than 50% year-over-year as Dell, HP, and Lenovo broadened their AMD offerings.

We also closed new enterprise wins across large technology, financial services, healthcare, and aerospace customers.

Looking ahead, we expect demand for our Ryzen CPUs to remain solid in the second quarter.

However, we are planning for second-half PC shipments to be lower due to higher memory and component costs. Against this backdrop, we still expect our client revenue to grow year-over-year and outperform the market, driven by the strength of our rising portfolio and expanding commercial adoption.

In gaming, revenue increased 11% year-over-year to $720 million. Semi-custom revenue declined year-over-year, as expected at this stage of the console cycle, while engagements with customers on next-generation platforms remained strong. In graphics, revenue increased year-over-year, led by demand for our latest generation Radeon 9000 series GPUs. We also strengthened our Radeon portfolio with updates to our FSR software that improved performance and visual quality across a broad set of gaming workloads.

Similar to the PC market, we believe that second half demand in gaming will be impacted by higher memory and component costs, and we are planning the business accordingly. Turning to our embedded segment, revenue increased 6% year-over-year to $873 million, driven by strength in test, measurement and emulation, aerospace and defense, and communications, as well as increased adoption of our embedded x86 products.

Design win momentum grew by a double-digit percentage year-over-year, with billions of dollars in new wins across markets, reflecting the continued expansion of our embedded business from a primarily FPGA focused portfolio to a broader set of adaptive embedded x86 and semi custom solutions significantly expanding our TAM. Our semi custom engagements also expanded in the quarter as data center communications and other embedded customers leverage our broad IP portfolio and high-performance expertise to build differentiated solutions.

In summary, our first quarter results mark a clear step up in our growth trajectory with accelerating momentum across the business.

Our client business continues to outperform the market, driven by Ryzen in adoption and share gains, while an embedded design with momentum and demand are strengthening across our expanded, adaptive, and x86 portfolio.

At the same time, our data center business is inflecting, with strong demand for both EPYC and Instinct products driving significant growth.

While we are still in the early stages of the AI infrastructure cycle, the pace and scale of deployments we are seeing today reinforce both the magnitude and durability of the opportunity ahead.

As inferencing and agentic AI deployments scale, they are fundamentally increasing compute requirements, driving both larger-scale accelerator deployments and significantly more CPU compute.

AMD is uniquely positioned to lead in this next phase of AI, with leadership products across high-performance server CPUs and AI accelerators, and the ability to optimize them together as fully integrated rack scale solutions. We have a world-class supply chain and are making significant investments to expand capacity and execute at scale.

With the momentum we are seeing across the business and the expanding market opportunity, we see a clear path to exceed our long-term financial targets, including delivering more than $20 in EPS over the strategic time frame.

Now I will turn the call over to Jean to provide additional color on our first quarter results.

Jean?

Jean Hu: Thank you, Lisa, and good afternoon, everyone.

I'll start with a review of our first quarter financial results and then provide our current outlook for the second quarter of fiscal 2026.

We are pleased with our outstanding first quarter results delivering accelerated revenue growth and earnings expansion driven by strong execution and operating leverage. First quarter revenue was 10.3 billion exceeding the high end of our guidance, growing 38% year-over-year, driven by strong growth in the data center and client and gaming segments, and the return to growth in the embedded segment. Revenue was flat sequentially with continued growth in the data center segment, offset by seasonality in the client and gaming segment and embedded segment. Growth margin was 55%, up 170 basis points versus a year ago, driven by a favorable product mix, including a higher data center revenue contribution.

Operating expenses were $3.1 billion, an increase of 42% year-over-year, as we continue to invest in R&D to support our AI roadmap and long-term growth opportunities and go-to-market activities. As the business scales, operating income grew faster than top-line revenue operating income was a 2.5 billion representing a 25% operating margin taxes interest and other resulting a net expense of approximately 275 million. For the quarter that was the earning per share was $1 37 cents up 43% year-over-year, underscoring the significant operating leverage in our model as we scale. Now turning to our reportable segment, starting with the data center segment.

Revenue was a record $5.8 billion, up 57% year-over-year and 7% sequentially, driven by strong demand for EPYC processors and continued ramp of instinct GPUs. Data center segment operating income was $1.6 billion, or 28% of revenue compared to $932 million, or 25% a year ago. Client gaming segment revenue was $3.6 billion, up 23% year-over-year. On a sequential basis, revenue was down 9%, consistent with seasonality.

The client business revenue was $2.9 billion, up 26% year-over-year, driven by strong demand for our latest rising processors, favorable product mix, and continued share gains across consumer and commercial markets. Sequentially, client revenue was down 7% due to seasonality. The gaming business revenue was $720 million, up 11% year-over-year, primarily driven by higher demand for Radeon GPUs partially offset by lower semi-custom revenue.

Sequentially, gaming revenue was down 15%, consistent with our expectations. In addition, as Lisa mentioned earlier, we expect second- half demand in gaming to be impacted by higher memory and component costs. We now expect second half gaming revenue to decline more than 20% compared to the first half. Client gaming segment operating income was $575 million or 16% of revenue compared to $496 million or 17% a year ago.

Embedded segment revenue was $873 million. Up 6% year-over-year as demand strengthened across several end markets, sequentially embedded revenue was seasonally down 8%. Embedded segment operating income was 338 million or 39% of revenue compared to 328 million or 40% a year ago.

Turning to the balance sheet and cash flow, during the quarter we generated 3 billion in cash from continuing operations and a record $2.6 billion in free cash flow, or 25% of revenue, demonstrating the cash-generating power of our business model. Inventory was roughly flat at $8 billion. At the end of the quarter, cash, cash equivalents and short-term investment were $12.3 billion. In the quarter, we repurchased 1.1 million shares and returned $221 million to shareholders. We ended the quarter with $9.2 billion authorization remaining and our share repurchase program.

Now turning to our second quarter 2026 outlook, we expect revenue to be approximately $11.2 billion plus or minus $300 million. At the middle point in our guidance revenue is expected to be up 46% year over year driven by a very strong growth in our data center segment, growth in our client and gaming segment, and a double-digit growth in our embedded segment. Sequentially, we expect revenue to be up approximately 9%, driven by double-digit growth in both our data center and the embedded segment, and a modest growth in our client gaming segment.

In addition, we expect second quarter non-GAAP growth margin to be approximately 56 percent. Non-GAAP operating expenses to be approximately 3.3 billion. Non-GAAP other income and expense to be again of approximately $60 million. Non-GAAP effective tax rate to be 13% and diluted share count is expected to be approximately $1.66 billion shares.

In closing, the first quarter of 2026 was an outstanding quarter for AMD, reflecting strong momentum across the business with accelerated revenue and earnings expansion.

We are very well positioned to build on the momentum as we scale our data center business, expand the margins, drive continued earnings growth, and the long-term shareholder value creation.

With that, I'll turn it back to Matt for the Q&A session.

....(Q&A) will follow in the comments......