A month has gone by since the last earnings report for Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) . Shares have lost about 8.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Advanced Micro due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AMD Q3 Earnings Beat Estimates, Revenues Up Y/Y

AMD reported third-quarter 2024 non-GAAP earnings of 92 cents per share, beating the Zacks Consensus Estimate by 1.10%. The figure surged 31.4% year over year.

Revenues of $6.82 billion beat the Zacks Consensus Estimate by 1.59% and increased 17.6% year over year, as well as 17% sequentially.

The top-line growth benefited from robust Data Center and Client revenues, partially offset by sluggishness in the Gaming and Embedded segments.

AMD Q3 Top Line Rides on Data Center Growth

Data Center revenues surged 122.1% year over year to $3.55 billion and accounted for 52% of total revenues. Sequentially, revenues increased 25%.

AMD’s top line benefited from the well-grounded Instinct product portfolio and strong growth in the fourth-gen EPYC CPU sales.

Exiting third-quarter 2024, AMD’s public cloud instances increased 20% year over year to more than 950, with Microsoft, AWS, Uber and Netflix deploying it at scale.

Meta Platforms alone employed more than 1.5 million EPYC CPUs globally to power its social media platforms. EPYC instance adoption by enterprise customers also expanded, with notable wins from Adobe, Boeing, Tata, among others.

The chipmaker has diversified its enterprise customer portfolio in the third quarter of 2024 with wins from energy, large technology and automotive companies, including Airbus, FedEx, HSBC, Walgreens and others.

Microsoft expanded its usage of MI300X accelerators to power GPT-4 and multiple co-pilot services, including Microsoft 365 Chat, Word and Teams.

AMD remains acquisitive with the announcement of its agreement to acquire ZT Systems, which provides AI infrastructure to large hyperscale computing companies. This will enable AMD to simultaneously design and validate its next-gen AI silicon and systems, speeding up large-scale deployment of data center accelerators.

The Client segment’s revenues soared 29.5% year over year to $1.88 billion and accounted for 27.6% of total revenues. Sequentially, revenues increased 26%.

The Gaming segment's revenues fell 69.3% year over year to $462 million and accounted for 6.8% of total revenues. Sequentially, revenues declined 29%.

The Embedded segment's revenues were $927 million, down 25.4% year over year, but up 8% sequentially. The segment accounted for 13.6% of total revenues.

AMD’s Margins Expand Y/Y in Q3

Non-GAAP gross margin expanded 300 basis points (bps) on a year-over-year basis to 54% driven by growth in the Data Center and Client segment.

Non-GAAP operating expenses increased 15.3% year over year to $1.72 billion.

Non-GAAP operating margin expanded 300 bps on a year-over-year basis to 25% in the third quarter.

AMD’s Balance Sheet & Cash Flow Remains Strong

As of Sept. 28, 2024, AMD had cash and cash equivalents of $3.89 billion compared with $4.11 billion as of June 29, 2024.

As of Sept. 28, 2024, total debt was $1.72 billion, unchanged from the figure reported as of June 29, 2024.

Operating cash flow was reported at $628 million compared with $593 million in the second quarter of 2024.

Free cash flow was $496 million in the first quarter of 2024 compared with $439 million in the second quarter of 2024.

AMD’s Q4 Guidance Unimpressive

AMD expects fourth-quarter 2024 revenues to be $7.5 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 22% and sequential growth of approximately 10%.

Sequentially, AMD expects strong growth in the Data Center, Client and Gaming segment.

Year over year, AMD expects Data Center and Client segment revenues to be up significantly, driven by the strong product portfolio. The Embedded and the Gaming segment revenues are expected to decline.

For the fourth quarter, AMD expects non-GAAP gross margin to be roughly 54%. Non-GAAP operating expenses are expected to be nearly $2.05 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -5.45% due to these changes.

VGM Scores

Currently, Advanced Micro has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Advanced Micro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Advanced Micro is part of the Zacks Computer - Integrated Systems industry. Over the past month, IBM (IBM Quick QuoteIBM - Free Report) , a stock from the same industry, has gained 10.8%. The company reported its results for the quarter ended September 2024 more than a month ago.

IBM reported revenues of $14.97 billion in the last reported quarter, representing a year-over-year change of +1.5%. EPS of $2.30 for the same period compares with $2.20 a year ago.

For the current quarter, IBM is expected to post earnings of $3.76 per share, indicating a change of -2.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +0% over the last 30 days.

IBM has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.