Advanced Micro Devices, Inc. (AMD) Earnings Call Transcript & Summary

Great. Good morning, everybody. I'm John Vinh with Keybank Capital Markets. I cover summits here. We're pleased to have AMD with us this morning and pleased to have Matt Ramsey Corporate Vice President of Financial Strategy and Investor Relations. Welcome, Matt. .

Thank you, John, and thank you for all your colleagues at Key Bank hosting us and I think we got -- I live in Atlanta. So we got a little bit of warm weather here, too, but the humidity is, I think, a factor of 6 below where I'm used to. This is great. So thank you guys for having us.

Great. Maybe where we could start off our conversation, Matt, is service CPU sounds like it's on fire for you guys. I think you talked about 80% growth in the second half revenue growth next year. And you talked about having secured enough capacity to support that growth and potentially even upside to that number. Maybe you can talk through what's been the premier constraint that you've had to work on to secure that sort of capacity?

And then for the upside of the 70% number, I've got to imagine you've got a you've got a lot more than demand than that. What needs to happen in order for you to be able to raise that number going forward?

No. No, thank you for the question, John. And it is remarkable time in the server CPU market. I know there was a couple of years where the market maybe grew a little bit less than it had historically as CapEx quickly shifted towards AI systems. And with the -- we've always, at AMD had the belief that server CPUs were going to -- and CPUs in general were of paramount importance across our business and have been investing in multiple generations of CPU architecture over a very long period of time. We're just about to launch our 2-nanometer Venus CPUs. We're sampling them to everyone today. They're going to ship in our Helios AI racks and they're going to ship the family of Venice CPUs are going to ship broadly across all of our server markets. What's happened in the last 9 months is absolutely phenomenal in the server market. And I think maybe I can describe a little bit about that big picture and then we can get to some of your supply chain oriented questions. What we've seen over the last 6 or 9 months is I think many of this audience and many in the industry have been waiting to see when the dominance of AI spend around AI training of large models was eventually going to shift towards being much more heavy on inference? And I think we, at our advancing AI event a few weeks ago, put out some models that we've done internally, where the shift is happening right now towards inference being the majority of the AI computing spend. What's happened on top of that shift, and that shift is happening right now is -- and this is maybe my terminology versus the company's terminology, but at the same time, the shift of spend is going from training to inference. Chatbot inference is becoming a genetic inference at the same time, right? And that's a phenomenal thing for our business because we supply what we believe are very differentiated products for inference on the GPU side, given our memory footprint and bandwidth and also the best CPUs in the industry. So what you need when you're running a genetic inference, you'll hand off the tasks to the big XPU or GPU cluster to actually run the intelligence of the inference. And then in a very automated way, the agents will take the result of the prior inference figure out what to do next and what to ask the inference and the AI model to do next, figure out where do I get the data to support the next step in the inference. Some of it comes from the cloud, some of it comes from enterprise systems, some of it comes from the web, some of it comes from more ever, reorganize the data and then hand it back off to the next step of the inference. And you do that a whole slew of times in a very automatic way, and you end up with a big agenetic automated inference flow. And agents are nothing but simulated automated workers. And the computing that these workers and agents do is very diverse. I just described some of the pulling data from here, there and everywhere, to hand off to the next inverts task. Sometimes it's running code was just generated by the prior inference task. And that requires really high thread counts, high-performance CPUs that can do many, many different tasks. And we're going to push at AMD to make sure that our Helios AI RACs are doing as much of this inference computing as we can, but there's a market out there where inferences run on many different accelerators and all of those need agenetic racks of CPUs. And that's what we've seen inflect the market. So we reported that we grew our server business more than 50% in the first quarter of this year. And many of you guys might remember when growing 15% to 20% in the server business was a phenomenal result. So we grew more than 50% in Q1. We grew more than 70% in Q2. And interestingly, both our cloud and our enterprise business both grew more than 70% in the second quarter. To John's point, we've talked about growing greater than 80% in Q3 and Q4 in the back half of the year. And then a really early view of 2027 is on top of that much larger base, at least 70% growth next year. So the constraints that you were asking about, John, I think there's a few right we need. We obviously need to wait for support from our great partner in CSMC and Lisa and our supply chain team have been working with the folks at CSMC directly, and they've been absolutely phenomenal partners of giving us additional supply. And we have to actually -- obviously, we need to earn it by delivering the products. But then there's advanced packaging, Venice is the first server product in the market to use advanced badging and we've invested. Lisa was in Taiwan, 1.5 months ago or so and we announced a $10 billion ecosystem investment in the time of ESOP system. Much of that is oriented on back-end capacity. So I think we feel really good about where we are there. And then the industry obviously needs to have memory to support these servers as we sell them. So we're working really closely with all of our OEM and ODM partners and our hyperscale partners to make sure that they have matched set DRAM to support the server volume. So I mean it's a pretty remarkable stat, right? The early view of 2027 server revenue for our company is roughly 20% larger than the whole server market was in 2025. So it's a pretty phenomenal thing that's happening, and we're going to continue to innovate. We talked about not just Venice, but the whole Florence lineup of CPUs that comes in 2028 in our event a couple of weeks ago. So we're going to continue to push across really high-performance single thread type SKUs to the highest core count and thread count CPUs for agentic racks and sort of everything in between. But John, that was a long-winded version, but there's a lot going on in server. So I just wanted to give a little bit of the lay of the land.

Great. Just a quick follow-up there, Matt, is do you think there's opportunities for you to secure additional capacity through the rest of the year to maybe grow at a faster rate than that?

Well, we're certainly going to try. As you guys know, there's a lot of things in the supply chain that are tight. We happen to be very well positioned. We're -- depending on what quarter it is, we're the third or fourth largest customer at TSMC and been a very loyal partner with them for a long time. So we're -- one of the things that's been interesting is when Lisa speaks about this, the industry is quite good. If you give accurate forecasts and sufficient lead time, the industry is quite good at getting new supply. It's when you come and ask for stuff, way underneath lead time where things get a little more complicated. So we're doing our absolute best to continue to upside on supply for the second half of the year. But I think we feel as we look into 2027 and into '28, that the industry, including ourselves and our partners have had much more time to adjust supply higher to support the growth. The nearer term has been where we've been having to work hard to get additional supply.

Great. Maybe switching to Helios. You talked about Helios going into mass production with maybe shipments starting in September. I'm just curious, can you talk about just the feedback you've gotten from your customers so far on Helios. What's kind of surprised them the most about it. .

I guess, I would start, John, you're absolutely right. We're going to start to ship MI-450 and the Venice CPUs in some of our Pensando networking products into our ODM partners that are billing Helios starting in the month of September, and then we're going to have a fairly large ramp of that revenue in the fourth quarter, another fairly large jump of revenue in Q1 and the business is going to be pretty phenomenal from a growth perspective. We talked about the server business growing more than 70%, but the data center business inclusive of AI growing much more than 100% next year. So that will leave quite a lot of -- I don't know what much, much more than 100% is, but the math has to do that to get there for 2027. The feedback from customers has been phenomenal. We've been working with the customers hand-in-hand on the designs and the spec of Helios for a very long time. And when you get to a product that is as complicated as this one going and launching full racks, with our partners. And the goal is no surprises. And so when you get folks that are running full model code on sampled systems and getting ready to scale those systems. And the feedback from them is, wow, this thing really works the way that you told us it was going to work. That's the feedback that you want. Every day is a little bit of a different challenge as we're trying to get a product as complicated as this off the ground into significant scale I mean we're going to go from a standing start to billions of dollars of revenue in the first quarter that it's shipping for the full quarter, right? So it's quite a ramp. And when you have that, there's something every day that happens, but the feedback from the customer base is phenomenal. We're very, very proud to have 3 of the premier model companies in OpenAI, meta and Anthropic as our sort of workhorse customers for this generation of product, each of which want to go to gigawatt scale with our first rack scale solution. And I think that's a testament to the performance of the rack, the performance of AMD as a partner and also the performance of the software stack that's allowed them to get to that point.

Great. Maybe just to follow up on that, right? You talked about your 3 strategic partners, open AI, Anthropic, Meta. It seems like you've got multi-gigawatt commitments from all of them. It seems like the expectation there is they're each going to roughly deploy about 1 gigawatt next year. How do we think about that ramp next year is kind of a gigawatt per strategic partner, the right way to think about it? And then what about the rest of your nonstrategic you've got your core customers such as Oracle, Microsoft seems like they could also maybe account for another gigawatt of capacity.

Yes, John, I think it's -- we want to take this ramp, and it's going to be a very fast ramp when you look at the revenue dollars, but we also want to take it in sort of a methodical approach because it is a complicated system. And the focus is on getting stable systems into market that our customers can run production code on as quickly as possible. And so if you think about MI 455, the MI 450 Helio series being the primary driver of our business. That really starts in next month in September and probably runs through the first quarter or so of 2028. So a 6- or 7-quarter period of time, right? And so we've gotten commitments for 6 gigawatt arrangements of 1 gigawatt commitments from both open AI and Meta. We've gotten a gigawatt commitment and a 2 gigawatt ambition from Anthropic over that generation. And as you mentioned, at OCI, there are other OCI customers that are going to be running on Helios at Microsoft. There's Azure customers and Microsoft's own internally, I workloads that are going to be running on it. There's a number of neo clouds that are there as well. So I think Lisa made a comment a couple of weeks ago that we would love to be -- there's certainly demand there to do what you described. It's now it's a matter of us executing and making sure we have land and power and Shell and capital commitments for all the folks to actually deploy this stuff. We'd love to be able to do the first full gigawatt with Anthropic in 2027, whether we get all the way there or not, there's some variables there, but we're on a really exciting growth trajectory to much more than grow our AI business by it's going to double in a good bit more than that next year, whether it's exactly the number of gigawatts per customer. I think that's a little too precise for today, but we're -- there's we have a significant ambition to ramp supply the customer demand is quite strong across those 3 and others, and we'll see where we get.