Advanced Micro Devices Inc Q1 FY2026 Earnings Call

Greetings, and welcome to the AMD First Quarter 2026 Conference Call. And please note that this conference is being recorded. I will now turn the conference over to Matt Ramsay, Vice President of Financial Strategy and IR. Thank you, Matt. You may begin.

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 2 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.

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 fifth-gen EPYC Turin CPUs and continued strength of fourth-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 1,600 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, health care, 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 sixth-gen EPYC Venice 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 the server CPU market growing at approximately 18% annually over the next 3 to 5 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 multiyear 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 0 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, expanding 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, health care 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 Ryzen 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 remain 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 digital 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 adoption and share gains, while in Embedded design win 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 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 deployment 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 solution. 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?

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 the Gaming segment and the Embedded segment. Gross 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 the long-term growth opportunities and go-to-market activities. As the business scales, operating income grew faster than topline revenue. Operating income was $2.5 billion, representing a 25% operating margin. Taxes, interest and other result in a net expense of approximately $275 million. For the quarter, diluted earnings per share was $1.37, 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 the 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 and 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 Ryzen 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 and 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 the 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 was $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 under 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 of 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 segments and modest growth in our Client and Gaming segment. In addition, we expect second quarter non-GAAP gross margin to be approximately 56%, non-GAAP operating expenses to be approximately $3.3 billion, non-GAAP other income and expense to be a gain of approximately $60 million. Non-GAAP effective tax rate to be 13%, and the 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 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.

Thank you, Jean. Operator, we're ready to start the Q&A session now.

The first question comes from the line of Joshua Buchalter with TD Cowen. Thank you, Jean. Operator, we're ready to start the Q&A session now.

Congrats on the results. Actually, I'm going to start with CPUs, which hasn't happened in a bit. It hasn't been that long since you announced the $60 billion server CPU TAM for 2030 at the Analyst Day, and it's very quickly doubled. Agentic AI has obviously gotten a lot of attention in recent months, but it would be helpful to hear your thoughts on how this TAM is inflecting and changing so meaningfully in such a short amount of time. And maybe you could also speak to your confidence in hitting that greater than 50% share target from the Analyst Day as your x86 competitor seems to be improving its supply and also there seems to be more momentum on the merchant and custom ARM CPU side.

Yes. Sure, Josh. Thanks for the question. First of all, when we think about CPU TAM, we've always said that CPUs are a critical part of data center infrastructure, and that's where we've invested. We saw the first signs of AI demand pulling CPU demand last year, which is why we updated the TAM to roughly an 18% CAGR, or approximately $60 billion. What we've seen since then—particularly with Agentic AI and inferencing—is that the CPU compute required is materializing much faster than we expected. Over the last few months, conversations with customers and our observations of how AI adoption is unfolding show significantly more CPU demand from every major cloud provider and enterprise customer. As AI adoption scales, you need more inferencing. As inferencing scales and you have more agents and Agentic AI, they all require CPUs for orchestration, data processing, and other tasks. We've analyzed this both bottoms-up by talking to customers and getting longer-term forecasts and by doing workload analysis. It's an exciting TAM: we expect CPUs to grow well over 35% to more than $120 billion. In the context of AMD, CPUs are critical for many tasks, so there's more discussion about CPUs in the market. We view the opportunity in three categories: general-purpose compute, head nodes that support AI accelerators, and CPUs for Agentic AI work. To address all of this, we believe you need a broad portfolio of CPUs. That's what we've been focused on—building not just one type but a wide range: throughput-optimized, power-optimized, cost-optimized, and AI-infrastructure-optimized solutions, such as our Venice family. Putting it all together, we're very excited about the larger TAM and encouraged by our traction. We're seeing significant share gains as we ramp our Turin portfolio, Venice is extremely well positioned, and we're working with customers on what comes beyond Venice and on those architectures. We feel very good about the market and our opportunity to grow to greater than 50% share of that market.

I wanted to ask about the Instinct side. So in the press release, you mentioned that MI450 and Helios engagements are strengthening with customer forecast exceeding the expectations and the pipeline growing. You certainly have the big public OpenAI and Meta deals. Was this comment referring to those engagements upsizing versus the announced initial deployments? Or was it other customers and maybe the increase on the MI450 timeline? Or is it MI500 and beyond?

Sure, Josh. So we are very excited about MI450 and Helios. We're seeing significant customer interest in those products as well. So we have certainly talked about our large partnerships with OpenAI and Meta, and those are going really well. We appreciate the deep co-engineering that is going on there. When we look at the totality of, let's call it, based on our current visibility, how those forecasts are coming in with all of our customers, we're actually seeing it above our initial plans that we had planned for 2027. And I think the encouraging thing is we're seeing a breadth of customers who are now very interested in deploying at significant scale MI450 series. And those are for both training and inference workloads, although the largest deployments are for inference. And based on all of that and the scale of new customer interest, we see a path to really get to exceed our original targets of greater than 80% CAGR. And these are really 2027 time frame. Obviously, when we talk to customers, we're talking to them about MI355. There's a lot of good traction we're seeing there. MI450 and Helios, I think for significant large-scale deployments, and then many customers are also very engaged with us on the MI500 series and all of the opportunities there. So we feel like very, very good progress. And the key is that we're continuing to broaden and widen the scope of both customers as well as workloads.

And the next question comes from the line of Thomas O'Malley with Barclays.

Lisa, if I get your numbers correct here in the March quarter, it sounds like the server processor side of the CPU side grew over 50%. If you take it just at the word, it looks like maybe the data center GPU side actually grew in Q1. So I was curious around the cadence of this year kind of previously, you had talked about really a back half weighted and then kind of more so Q4 weighted year. Could you talk about if that's changed at all? And then the second part of the question is, as you go into 2027, clearly, you're pointing out a lot of upside from the larger customers and then kind of the ecosystem around them with new customers as well. But when you look at supply, that's a major issue in the ecosystem today, could you talk about where you're concerned on supply, if you are? And then any gating factors as you look into next year, whether that be power, data center build-outs, et cetera? Or do you feel really good about the ability to grow?

Yes. Okay. A lot of pieces of that question, Tom. Let me try to get through it. First of all, on the Data Center segment in Q1, the Server business was greater than 50% year-over-year as we said in the prepared remarks. The Data Center AI was actually down modestly because of the China transition. We had sequentially more China revenue in Q4, and it was less in Q1. But as we go forward, I think we see strong growth in both segments. We guided data center Q2 up sequentially double digits, and that's double digits in both Server as well as Data Center AI, with progression as we go forward. On the server CPU side, we talked about growing to over 70% year-over-year in Q2, and that continuing into the second half of the year. On the Data Center AI side, we will be ramping Helios in the second half of the year, starting with initial volume in Q3 with a significant ramp in Q4 and then continuing to ramp in Q1. That's a little bit of progression. And then to your questions about customers and supply, I think I answered, Josh, the customer question. I think we have very good visibility now into the deployments that are on track for 2027. When I say good visibility, it's visibility down to which data centers the GPUs are going to be installed in. That's necessary given all of the constraints out there. We feel that there is tightness in the supply chain, and there's certainly tightness in data center build-outs, but we are confident in our ability to supply to the levels of growth that we're talking about and to exceed those levels. We're also working very closely with our customers and our partners to ensure that we have good visibility to Data Center power. There is much more power coming online in 2027. With all those things in mind, I think, again, lots of things to manage. It's a complex ramp, but we're very pleased with the progress on the ramp.

All right, Tom, I think you shotgun approached the multiple questions there. So operator, maybe we can go on to the next caller, please. Thank you.

The next question comes from the line of Ross Seymore with Deutsche Bank.

The first one is on the EPYC competition. Lisa, you went through some statistics comparing you with x86 and with ARM, but I'd like to dive deeper. How do you see AMD truly differentiating, especially when some competitors are signing up the same customers on the ARM side and the x86 competitors have greater supply? Could you dig deeper into how you think market share will trend over time?

Ross, look, we're very engaged with every major hyperscaler and in terms of understanding their needs on the CPU side. I think we have very much wanted to, let's call it, optimize our CPU roadmap for the various workloads. I think we were early to call this AI component of CPUs. And so we've been actually optimizing very closely with those customers. The way to think about this, Ross, is that you're going to need a broad portfolio of CPUs, like not all CPUs are the same. Frankly, you're going to need different CPUs for whether you're talking about general purpose operations or you're talking about head nodes or you're talking about Agentic AI tasks, they're going to be optimized differently. And we thought through that, and we are absolutely optimizing across the various workloads. So from a competitive standpoint, we feel very good about where things are. And from a deep relationship with the customer set, I think we feel very good about that. So from our current standpoint, I think the depth of our roadmap just expands as we go forward. And you shouldn't think about it as people are going to do one or the other. I think you're going to see people actually use x86 and ARM for many of the large hyperscalers. And even for those who are developing their own, they're still buying lots of CPUs in the merchant market for the reason that I just stated, which is unique different CPUs for the different types of workloads, and there's very high demand at the moment.

I guess for my follow-up, maybe more for Jean on the gross margin side of things. It's nice to see the gross margin popping up in the second quarter guide. But I just wanted to get some trends longer term, maybe not specific numbers, but how should we think about when Helios and the Instinct side really ramps in the fourth quarter and more so next year. I could see some offsets with that carrying a below corporate average gross margin, but then everything that Lisa talked about with the EPYC side of things being significantly stronger might be more of an offset than it was in the past. So just walk us through the puts and takes of that and maybe directionally where you think gross margin goes over the next year or 2?

Yes, Ross, thanks for the question. We are very pleased with how our gross margin is trending. It came in really strong in Q1. And also, as you mentioned, we guided Q2 higher at 56%. I think as we think about the second half quarter-over-quarter, as you know, there are some puts and takes, right? I would just say, from a tailwind perspective, we actually have multiple tailwinds really are going to help our gross margin. First is the server CPU. Lisa talked about the server CPU expected to grow more than 70% in Q2 and continue to be really strong in second half. That really helps our gross margin. Secondly, in the second half for Gaming actually is going to come down, and our Client business actually continued to go up the stack. So from a Client and Gaming segment, the gross margin actually is going to be also very helpful. Embedded actually is very accretive to our gross margin. Its momentum actually is continuing in the second half. So we are really pleased with all the tailwinds we have. On the other side, MI450 will start to ramp in Q3 and then ramp significantly in Q4. That is below corporate average. So that will have different puts and takes in Q4 in the gross margin side. But when we sit here, when we look at all the positive trends we have to really offset some of the gross margin dilution from MI450 side, we actually feel really good about the setup of the gross margin for 2026. And into next year, I think some of the tailwinds I talked about that will actually continue. That's why we feel confident about continue to drive the gross margin. We actually, during our financial Analyst Day, we outlined the long-term gross margin in the range of 55% to 58%. We think for the first year, we are making good progress there.

And the next question comes from the line of Timothy Arcuri with UBS.

I wanted to ask about units versus ASP for server CPUs. If I look at the June guidance, it implies server CPU is up about 25% to 30%. And Lisa, you mentioned the second half of the year, which implies server CPU could grow around 70%, maybe a bit more for the year. How much of that growth, either in June or for the full year, is due to units versus pricing? Are these price increases mostly reflected in June, or will they also contribute in the back half of the year?

Yes. Tim, let me bring you back to Q1 for a moment. If you look at our significant growth in the server business, although we were up on a year-over-year basis for both ASPs and units, the growth was much more unit driven. We are shipping more CPUs not just in the high-end Turin family but also a lot of Genoa, the Zen 4 family. For Q2 and into the second half, we are guiding for significant growth. There is a little bit of ASP in there, but on pricing we are in a range where the supply chain is tight, so there are some inflationary pressures. Costs have risen, and we are sharing some of that with our customers. We are also being very thoughtful and focused on the long term, and our goal is to ship many more units. From that standpoint, most of the growth should be unit driven, and any ASP increases are primarily to help cover inflationary pressures.

And just to add to what Lisa said, our ASP is increasing because of the mix where actually each new generation, the core counts, those are increasing, that actually drives the ASP up.

And then I guess, Lisa also, so there's a lot of new architectures that are being used from multi-tenancy all the way to low latency. And your competitor has talked about the low latency part of the market being 20% plus and they, of course, added to their portfolio there. Can you talk about how you see that part of the market? I mean, obviously, you have enough business now you don't need to worry about that probably for now. But can you talk about that?

Yes, sure. I think what we're seeing is what we expected: as AI adoption continues and volumes rise and the overall market grows, you are going to see different compute architectures being used because customers want more cost optimization. We expect that even in that situation, the vast majority of the TAM will still be data center GPUs as the primary accelerator. But you may choose to optimize around inference, low latency, or certain parts of the stack, whether it's decode versus prefill, and that is very natural. We're developing a full compute portfolio — CPUs, GPUs, the ability to connect to all accelerators, and the ability to do customization for certain customers, and we've also discussed our semi-custom capabilities. With all of those compute capabilities in our tool chest, I think we will be able to address a large portion of this market effectively, including the low latency portion. From our standpoint, this is a natural evolution. How fast it moves depends on the technology and what share of the TAM these variants become, but we should expect different variants, and we're well prepared to address them.

And the next question comes from the line of Vivek Arya with Bank of America.

Lisa, do you think Agentic CPU growth is incremental? Or is it coming at the expense of GPUs conceptually? So if you're raising server CPU TAM, are you also implicitly kind of raising AI TAM? So just I'm interested in your perspective on what did you think server CPU was as a percentage of AI TAM before? And what is it now with this $120 billion number?

Sure, Vivek. The way we're thinking about it is that it's largely additive to the TAM. You should think that we need all of the accelerators to run these foundational models, and as these agents do work, they spawn more CPU tasks. I would say it's largely incremental. The key in these deployments is to ensure the right ratio of CPUs to GPUs. If you're installing a gigawatt of compute, the percentage of CPU as part of that gigawatt will increase. Industry conversation has focused on CPU-to-GPU ratios. It's hard to call exactly, but we see movement from the past model where CPUs served mainly as host nodes in 1:4 or 1:8 configurations toward something closer to 1:1. You can even imagine that with lots of agents you could have more CPUs than GPUs. All in all, to answer your question, I think it's largely additive to the TAM. The important point is that everyone is now planning and thinking about CPUs at the same time they're planning accelerator deployments, which is a good thing.

All right. And from my follow-up, Lisa, we continue to see memory prices go up. I imagine that is both kind of a cost inflation for you but perhaps an opportunity to take price as well. I'm curious, how is that dynamic playing out for AMD? And especially for your customers because a greater part of their CapEx increase is really kind of this memory inflation tax, right, that they have to pay. So how is this dynamic playing out for you and for your customers? And the part that I'm really interested in is that have you secured enough supply versus your other larger competitor who has disclosed a lot of prepayments and other things? So just how is this memory inflation dynamic playing out? And are you kind of adequately supplied from that perspective?

Sure. So Vivek, let me answer the second one first. I think from a supply standpoint, we are very happy with our partnerships with the memory vendors, and we have secured enough supply to certainly meet and exceed our targets. So it is a tight memory environment. Let me be clear. But I think we are very deep partnerships with the memory providers. And then back to your comments on the inflationary pressures. I mean, look, this is something that everyone in the industry is working with in the time of tight supply, we are seeing some cost increases on the memory side. I think we are all working through that. The way we're seeing it unfold in the market is actually on the Data Center side, because of the, let's call it, the demand for AI compute, I mean people are largely focused on supply and ensuring that the supply assurance is there. The corollary of that, the larger impact that we're watching is the impact on the consumer markets. And there as well, we're seeing our newer products do very well. So from our standpoint, it is all about ensuring that we ship what the customer needs. And in this case, it typically is our newer products, and we expect that to continue. As we transition into Venice later this year, we will expect Turin and Genoa to continue shipping, but there's a lot of goodness in going to the new products. And on the supply chain side, I know there's been a lot of discussion about how tight the supply chain is. The supply chain is tight. I would definitely say that. But I also think this is an area where we excel. We have very deep relationships across the supply chain on the wafer side, on the back end capacity side. And we are seeing meaningful improvements in that. And as our customers come to us with more demand, we are getting more supply. And the good thing about this is we're now talking about '27 CPU demand, we're talking about '28 CPU demand. And so that allows us to just plan much better as we go forward.

And the next question comes from the line of Aaron Rakers with Wells Fargo.

Congrats on the results. I want to stick on the topic of CPU to GPU. And as we think about the chart that you had outlined at the Analyst Day, there was obviously broken out between traditional CPUs and then the AI bucket on top of that. Obviously, I think the new forecast has a lot to do with the AI CPU expansion. I'm just curious, when you're doing a CPU in an AI workload, is there structurally a different level of ASP tied to that kind of CPU optimized for AI relative to a general purpose server CPU? Any kind of color or help on that would be useful.

Sure, Aaron. Let me start with the broader question. We think about the CPU TAM in three categories. First, traditional general-purpose CPUs, which are growing but at a relatively low rate, roughly low double digits. Second, AI head nodes that connect to accelerators — these are also growing but represent a smaller segment. Third, and the largest contributor to growth, is Agentic AI, driven by agentic processes. I don't have a specific number for relative ASPs because that depends on the workload. Going forward, as core counts increase, ASPs will rise, which is the direction we're moving. The key point is that the biggest portion of the TAM increase is coming from CPUs serving Agentic AI workloads.

And as a quick follow up, I'm curious, how do you characterize the competitive landscape as we see some of the ARM introductions in the market. Just curious of your views on the competitive landscape and server CPU.

Yes. Aaron, the best way to think about the server CPU landscape is, again, number one, everyone is talking about CPUs. So that tells you how critical they are for the AI infrastructure. And I think that's a good thing. We feel like we're very well positioned. No question, ARM is good architecture. It has a place in the Data Center market. We view it as more point products relative to a portfolio, where, from an AMD standpoint, we've built this broad portfolio of CPUs, going forward, what you're going to need for all of these different workloads. And we have, in the Venice time frame, added an AI-optimized CPU with the Verano in addition to our throughput optimized and sort of cost optimized point. So from that standpoint, I think we're very competitive. We're continuing to innovate on architecture. We're continuing to innovate on both advanced packaging as well as all of the architectural pieces. So we feel very well positioned going forward. And the key is the TAM is much, much larger than anybody thought. And so there's a lot of opportunity for different products to be successful in this area.

And the next question comes from the line of C.J. Muse with Cantor Fitzgerald.

First question: I was hoping to hear more about the client business for all of calendar 2026. You mentioned expected growth, but I'd love your thoughts on seasonality in the second half. Also, I'm assuming you are repurposing certain logic tiles from client products to the Data Center, and I'd like to better understand the implications of that for client-side ASPs in the second half.

Sure. So C.J. I think the client business has performed really well for us. I think if we look at Q1, it actually was a little bit stronger than what we expected. We are seeing some mix shift in the client business. The mix that we're seeing is the M&C or the Notebook business is actually growing, especially the premium portion. We're making very good progress in the commercial PC arena with our AI PCs. We did see desktops a little bit softer just given desktop is a more consumer-focused market. And so in that market, it's more impacted by some of the memory pricing and the component price increases. When we look at the full year, our commentary is we are planning for some demand impact in the second half due to the memory pricing. But even in that environment, what we're focused on is ensuring that we continue to make good progress on the Commercial business and continuing to focus on the premium segments of the market. So we believe that we will continue to grow on a year-over-year basis for the Client business compared to last year. And as it relates to ASPs, again, it's a little bit of puts and takes between Notebook and Desktop. But overall, I think we're feeling good about our opportunity to outperform the market and clients going forward. Does that answer?

That was perfect. And then I guess a question on Instinct gross margins. With compute essentially sold out and obviously, you're building a business, so one has to be, I guess, conservative on that front. But I would think outside of kind of passing through HBM that given the very tight wafer environment that this would be a place where you could look to drive your Instinct margins closer to your corporate average? How are you thinking about that either today or in the coming 1, 2, 3 years?

At this stage, we are really focused on driving topline revenue growth for our Instinct family of products. On the gross margin side, you're absolutely right: demand for compute is tremendous. We are very strategic in how we work with customers, and different customers have different gross margins. Over time, as we ramp revenue, we'll have many opportunities to improve gross margin, both on the ASP side and, more importantly, on the cost side as we scale the business.

And the next question comes from the line of Stacy Rasgon with Bernstein Research.

For the first one, I just wanted to make sure I have the near-term AI GPU trajectory correct. So I know you said it was down sequentially in Q1 because of China. You had like $390 million of China revenue in Q4. So the AI business in Q1 actually grow sequentially ex China because it doesn't feel like it, given the server outlook? And then I look at what's maybe suggested for Q2, are you thinking GPUs and servers kind of grow similar rate sequentially because it would probably put GPUs in Q2 below the overall revenue in Q4, which seems low to me. I'm just trying to tie all that out. Could you help me with that, please?

Yes. So I think, Stacy, I appreciate the question. I think if you look at Q1, we did mention Data Center AI was down modest pace sequentially, primarily due to lower China revenue in the quarter. I think on your second question regarding Q2, you're right, both Data Center AI and the server will grow double digit in Q2.

Yes. But you didn't answer my question. In Q1, did it grow sequentially ex the China step down, I guess, is what I'm asking.

China, for our business in Q1, is not material. So I'll repeat what I just said: yes, China revenue in Q1 is not material.

Okay. Okay. So you don't want to, okay. Second question: OpEx guidance for spending seems to keep blowing past the targets. You give an OpEx guide and then it blows through it and you guide higher. I'm not bothered by this; I just wonder why OpEx has been so hard to forecast, and how we should think about OpEx through the rest of the year given the revenue growth?

Yes. Thanks, Stacy, for that question. I think the most important thing is given the tremendous market opportunities we have, we actually are investing aggressively. If you look at the past several quarters, we're really leaning in, in investing, but all the AI investments are driving the revenue momentum. So if you look at the Q1, revenue was 38% up, then Q2, we guided 46% up. The investments are driving the revenue momentum. Some of the OpEx increase, of course, is tied to the revenue. When you look at our beat on the revenue side versus our guidance, we did beat on the revenue side, right? So that impacted a little bit. But also, at the same time, we have a lot of customer engagement with our Data Center AI business, we do continue to make sure we have the resource to support our different customers.

Thank you very much. Operator, I think we have time for one more caller on the call. Thank you.

Our final question comes from the line of Blayne Curtis with Jefferies.

Lisa, I just want to go back to the supply side. There was a lot of story about your competitor restarting 7-nanometer. I'm just kind of curious as you look at that landscape which is quite robust through the end of the decade, do you think that the older products will stay around longer? And is there a way to think about the implications for gross margin in such a strong market. Is that actually a negative?

Actually, Blayne, I don't think we see the older products hanging around longer. In our case, I think it might be company-specific. We actually see, first of all, Turin is very strong. We actually crossed over 50% of our revenue being Turin this quarter. Genoa is very strong. We're still shipping some Milan, but I would say that's come down over time. So in general, people want to use the newer products because they're just more efficient in every aspect from performance to cost structure to power. That's what we're seeing. I should also mention that, in addition to what we're seeing in the cloud server segment, we're seeing a really strong pickup in enterprise. There as well, our newer products are doing very well. From our standpoint, it is all about ensuring that we ship what the customer needs, and in this case it typically is our newer products, and we expect that to continue. As we transition into Venice later this year, we expect Turin and Genoa to continue shipping, but there's a lot of benefit to moving to the new products. On the supply chain side, I know there's been a lot of discussion about how tight the supply chain is. The supply chain is tight, I would definitely say that. But I also think this is an area where we excel. We have very deep relationships across the supply chain on the wafer side and on the back-end capacity side, and we are seeing meaningful improvements. As our customers come to us with more demand, we are getting more supply. The good thing about this is we're now talking about 2027 CPU demand and 2028 CPU demand, and so that allows us to plan much better as we go forward.

And then just a quick one for Jean. I'm just curious to follow up on Stacy's question on OpEx. I guess I was a little surprised that SG&A is kind of outpacing R&D. I was just kind of curious, is that start-up costs, because in a strong market, you wouldn't think you would have to discount or have a big sales effort. So I'm just kind of curious for the year, how you think about R&D growth versus SG&A?

I think for the year, you should expect us to grow R&D much faster than SG&A. I think in the past few quarters, we have been really building our go-to-market machine, and we have been investing more in sales and marketing side. But going forward, you should expect the year-over-year growth R&D will grow faster than SG&A growth.

Yes. And if I just add to that, Blayne, Jean is absolutely right. We're investing in R&D ahead of sales and marketing. But the places that we're investing in sales and marketing are paying off. So the investments are going into enterprise servers. They're going into commercial PCs. They're going into mid-market, small and medium business. These are places where AMD traditionally didn't invest, but now that we have a much broader portfolio, both on the server CPU and on the commercial PC side, it makes sense for us to invest because that's sort of the very best part of those markets.

All right. Thank you very much, everybody, for joining and your interest in AMD. John, you can go ahead and close the call now. Thanks.

Thank you. And ladies and gentlemen, that does conclude the question-and-answer session, and that also concludes today's teleconference. We thank you for your participation. Please disconnect your lines, and have a wonderful day.