Data Center revenue doubled to $6.7 billion, the third-quarter gross margin guide held at 56%, and the shares surrendered 8.8% in extended trading after a 7% pre-release gain.
AMD delivered record revenue, more than doubled its Data Center segment, raised its long-term financial targets, and then lost 8.8% of its value in extended trading. The regular session had already added 7.00% before the release crossed at 4:15 p.m. Eastern. Against Monday's close, the round trip left the stock about 2.4% lower. The argument the quarter opened concerns the cost of the ramp AMD has now promised, in gross margin, capital spending and working capital.
Data Center now carries the company
Data Center revenue reached $6,718 million, up 107% year over year. The segment was 58% of company revenue, against 42% a year earlier. Segment operating income was $2,103 million, a 31% margin, compared with a $155 million loss in the same quarter of 2025. Server products drove much of that. Lisa Su said cloud and enterprise server sales each grew more than 70%, the fifth straight record quarter for server CPU revenue. She said units and average selling prices both rose by double digits, with units the larger contributor.
The rest of the company did not follow. Client and Gaming revenue rose 6% to $3,841 million. Segment operating income fell 24% to $582 million, and margin dropped to 15% from 21%. Jean Hu attributed that decline to continued go-to-market investment and an expanding product roadmap. Client revenue rose 23% to $3,062 million on record mobile processor sales. Gaming fell 31% to $779 million, mostly on lower semi-custom sales at this stage of the console cycle. Embedded was the quiet standout at $977 million, up 19%, with operating income up 40% and the highest margin of the three segments at 40%.
Concentration cuts in more than one direction. Data Center produced more operating income than AMD reported in total. Company GAAP operating income was $1,990 million, because $1,081 million of unallocated stock compensation, intangible amortization and acquisition costs sits outside the segments.
Three earnings growth rates are in circulation
GAAP diluted earnings per share came in at $1.38, up 156%. Non-GAAP diluted EPS was $1.66, up from $0.48, or 246%. On the call, AMD used neither figure. Hu said earnings per share rose about 82% on a comparable basis. That basis restates the prior year to exclude $800 million of inventory charges. Those charges followed the export restriction on MI308 shipments to China. The 82% is the number that reconciles cleanly. Q2 2025 GAAP net income of $872 million carried both that $800 million charge and an $853 million release of tax reserves. Operating income in that quarter was a $134 million loss.
This quarter's GAAP figure has its own distortion. Other income was $598 million, including $483 million of gains on long-term investments. The adjusted measure excludes those gains, worth about $0.29 a share. GAAP does not. Excluding them, GAAP EPS would sit near $1.09 on this publication's calculation. On two lines the company's own adjusted measure is the more conservative one. It strips the investment gains. It also applies a normalized 13% tax rate, against a GAAP effective rate of 9.9%.
What the adjusted figure leaves out every quarter is larger. Stock compensation of $503 million and acquisition intangible amortization of $544 million together come to $1,047 million. That equals 9.1% of revenue and $0.63 a share, or 38% of the $1.66. Revenue growth of 50% and segment operating income remain the cleaner read on the operating turn.
The margin guide stayed at 56%
AMD guided third-quarter revenue to approximately $13.0 billion, plus or minus $300 million. The midpoint implies 41% annual growth and 13% sequential growth, and it clears published consensus near $12.5 billion. Non-GAAP gross margin was guided to approximately 56%, level with the 56% just delivered. Operating expenses were guided to about $3.65 billion, a smaller step up than the revenue guide.
Hu said gross margin is set mainly by business mix. She also said data center AI gross margin sits slightly below the corporate average, while server CPUs and embedded products lift it. Barclays analyst Tom O'Malley asked whether 2027 margin looks like a net tailwind or a net headwind. The answer listed puts and takes and gave no number.
The wording of the outlook drew a direct challenge. Bernstein's Stacy Rasgon noted that Data Center grew 107% in the quarter while the implied third-quarter rate is lower, and asked how that counts as acceleration. Hu said the comparison is second half against first half, not quarter against quarter. Both statements are accurate, and they measure different things. The release used the shorter one.
Memory costs run through three parts of the outlook. Su said HBM allocation for 2027 is visible and co-planned with suppliers. She also said AMD can modify the memory footprint in Helios where the total cost of ownership does not justify it. Higher industry component costs have already pushed graphics card prices up and weighed on demand, and AMD is planning for a softer PC market in the second half.
Positioning against the full-year path matters as much as the near quarter. Consensus compiled by MarketScreener implied about $12.5 billion in the third quarter and $15.7 billion in the fourth, an average near $14.1 billion. The guide clears the nearer number and leaves the fourth quarter carrying more of the second-half step up.
Cash conversion weakened as capital spending rose
Operating cash flow from continuing operations was $2,366 million, or 21% of revenue, down from $2,955 million and 29% in the first quarter. Free cash flow was $1,558 million, a 14% margin against 25% three months earlier. Capital expenditure was $808 million, up 186% from a year earlier and 7.0% of revenue.
The composition of that cash matters. Accounts payable supplied $2,274 million of operating cash in the quarter. Payables rose 83% on the balance sheet, to $5,359 million from $2,929 million at year end. Receivables took $1,246 million out. Inventory is the clean line, up 6.9% to $8,468 million against 50% revenue growth. Hu described the cash generation and the inventory build on the call without reference to the payables swing.
Buybacks stopped. AMD repurchased no common stock in the quarter, against $478 million a year earlier, and $221 million across six months versus $1,227 million. The release gave no reason, and no analyst asked. Cash and short-term investments ended at $13,111 million against $3,226 million of total debt, so the balance sheet does not suggest a funding constraint.
What the fourth quarter has to show
Su raised the destination twice on the call. She said the market for high-performance and AI computing is growing about 40% a year, toward roughly $2 trillion by 2030. Within that, she put data center AI accelerators near $1.4 trillion and server CPUs near $220 billion. She said AMD is tracking materially ahead of the model presented last November. Revenue growth should run substantially above the prior target of more than 35%. Earnings should exceed the $20 annual EPS target by a wide margin within the company's strategic timeframe. She told Cantor's C.J. Muse that a 2027 data center AI estimate near $30 billion was probably too low.
Helios is the mechanism. AMD said the platform is in production, with initial shipments beginning this quarter, a step up in the fourth quarter and a further step up in the first. Named deployers in the release include Meta, Microsoft, OpenAI, Oracle and Anthropic, and Su described OpenAI, Meta and Anthropic as strategic anchor customers. She also said yields on a product this complex should improve across the first few quarters. That places the cost of the ramp in the same window as its revenue.
The tests are now specific. Holding 56% gross margin through the fourth quarter, while Helios ships in volume, would support management's mix argument. Free cash flow margin recovering without another payables build would do the same. Server revenue growing more than 80% in the second half is a claim with a date attached. A fourth-quarter margin guide below 56% would argue the other way. So would another decline in Client and Gaming profit, capital spending rising again on a flat margin, or memory costs arriving in cost of sales.
The burden of proof moved during this quarter. Before the print, AMD had to show that accelerator demand was durable and that server share gains were real. The segment numbers did that work. Su then raised the long-term targets, which shifts the argument to conversion. The outlook contains one revenue line and one margin line. It carries no segment guidance, no backlog and no remaining performance obligations. Until the fourth quarter, investors are pricing a ramp they cannot yet check.