AMD shares rallied sharply in extended trading on Tuesday after the chipmaker reported that its data center business grew 97% year over year in the third quarter, delivering the combination of stronger artificial intelligence sales, higher profits, and a forecast that topped Wall Street's expectations. The stock rose more than 6% in the immediate aftermath and climbed by as much as 8% in after-hours trading.

Quarterly revenue jumped 45% to $13.38 billion, up from $9.25 billion a year earlier, exceeding the $13.09 billion expected by analysts surveyed by LSEG. Earnings per share came in at $2.09, ahead of the $1.95 estimate. AMD disclosed the results in an official press release.

The rally followed a shaky stretch. AMD had fallen for three straight sessions as investors questioned whether Silicon Valley was committing too much money to AI infrastructure. Even after that wobble, the stock remains up roughly 125% this year. The quarter also offered a fresh data point in that debate, with growth concentrated in data center hardware even as the consumer PC market contracts.

Data center is now the core growth engine

Data centers accounted for 64% of AMD's total revenue in the quarter, up from 47% a year ago — a striking shift for a company long known primarily for its PC processors. AMD is one of the leading makers of processors for personal computers and servers. Chief Executive Lisa Su said revenue from servers is set to double next year, while AI-driven data center revenue will grow even faster than she anticipated three months ago.

"We have worked across our supply chain to secure the wafers, substrates, advanced packaging, memory, and other key components needed to support much higher growth next year," Su said during the earnings call.

There is another twist in the AI chip race. Nvidia (NVDA) still dominates the market for AI graphics processors, but AMD is winning more customers for its traditional server CPUs. Those chips help run the virtual machines behind agentic AI — software capable of handling tasks independently for hours at a time. Meta's Muse is one example. Demand tied to such agents helped lift AMD shares to a record high in October.

"Adoption is just starting, and we expect demand to grow sharply as agents are deployed more broadly and take on more complex work," Su told analysts.

AMD's Helios systems integrate AI chips across entire server racks and compete with Nvidia's Grace Blackwell and Vera Rubin architectures. Customers of the technology include Meta, Microsoft, Anthropic, OpenAI, and Oracle. Meta said last week that its Helios racks are already live, and AMD invested in Meta's equity agreement for up to $1 billion. AMD has also committed $5 billion to Anthropic, the AI developer that filed a prospectus for an initial public offering just last week.

PC weakness persists and chip supply remains a constraint

Not every corner of AMD's business is expanding. Revenue from the combined PC and gaming division fell 8% to $3.7 billion, with gaming sales alone down 40%. The broader computer market is also struggling: Counterpoint Research estimates that global PC shipments dropped 4% in the second quarter as memory and other components became more expensive.

AMD and Intel both manufacture x86 processors for desktops and laptops, and the two rivals also compete against the Arm-based designs used by companies such as Apple and Qualcomm. Intel, for its part, reported a 78% increase in data center equipment sales in its most recent quarter, yet its stock fell 29% in a single day.

For the fourth quarter, AMD guided to roughly $17 billion in revenue, ahead of the $16.2 billion analysts projected. Its expected gross margin of 55% is slightly below the 55.3% StreetAccount estimate. The sales outlook was enough to impress investors, even if profitability was not quite where analysts had wanted it. Attention now turns to fourth-quarter execution against the $17 billion target and to progress on the 2027 supply expansion Su has outlined.

Manufacturing enough hardware has become a central part of the challenge. During an October visit to Taiwan, Su said AMD plans to "substantially increase our supply in 2027." She and Nvidia CEO Jensen Huang have made repeated trips to Taiwan and South Korea this year to meet suppliers including TSMC, SK Hynix, and Samsung.

AMD is also diversifying beyond chips. In September, it announced an $8.2 billion all-stock deal to acquire World Labs, the San Francisco AI company founded by researcher Fei-Fei Li. World Labs' technology builds simulated three-dimensional environments to help develop systems that interact with the physical world, including robots. The deal underscores how AMD is repositioning around AI infrastructure as data center work overtakes PCs as its principal source of revenue.

Source: Cryptopolitan