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AMD has released its latest quarterly results. A great quarter for the company . Good predictions too. And for the first time, we got really interesting and useful numbers for the fourth quarter and for 2027 . The market really, really liked it. The shares rose after the close of trading. Shares also rose throughout the day.
Most semiconductor and AI companies were up on Tuesday, which I think suits us. At this point, the market is dependent on headlines, and they are not very conducive to trading in the AI space right now. So I think we'll take advantage of every good day we have. And yes, again , this is a solo show.
We're going live with Travis on Wednesday to discuss Uber's earnings and more. So make sure you are subscribed to the channel . For now, let's focus on AMD's earnings report. So, our revenue grew by 45%, which exceeds the upper limit of the forecast. Non-GAAP EPS increased by 74%. The revenue forecast for Q4, as you can see, predicts further acceleration in growth.
66% growth year-on-year , and that's up 27% quarter-on- quarter, reaching $17 billion . They expect over 80% revenue growth in 2027, with the data center segment accounting for over 80% of sales. And why is this figure of over 80% important? Well, because if we look at what analysts expected for the next fiscal year, it's about $90 billion in revenue, but only 76% growth—I say "only" because we know the number will be higher.
Now AMD tells us that they expect over 80% revenue growth next year. And so if we look at the monetary amount , we know it will be higher than $90 billion. We also know that fiscal year 2028 figures will be higher than the market expects at this time. So expect revised estimates from analysts over the next few days.
Going back to this quarter, we see that gross margin increased by 190 basis points year-over-year. We essentially have stable quarterly performance. Operating expenses increased by 29% year-on-year. While revenue grew 45%, operating profit increased 75% year-on-year, and operating margin now reached 29.3%, up 5.1 percentage points year-on-year.
Net income grew by 77%, and diluted earnings per share by 74 %. Looking at each business segment, we have the data center direction, the client segment, the gaming segment, which are now also combined, as well as embedded systems. So data centers, of course, you can clearly see that that's the biggest segment for them.
It grows the fastest. We also have an operating margin that has increased from 25% to 34%, with operating profit for this segment of $2.9 billion. This is 168% more year-on-year. The operating margin of the client segment and the gaming direction decreased. Income also decreased. The client segment has still grown a bit, but the gaming segment is under pressure.
Embedded systems grew year-on-year. And, as you know, the embedded systems business is very, very profitable. We are back to 41% operating margin. Looking at the fourth quarter for data centers, we are expected to reach $12.8 billion. This is 50% more than in the previous quarter. They stated the following.
Sales of servers for cloud services and enterprises doubled year-on-year. The MI250X model was shipped in large volumes. Helios racks are in service at Entropic, Meta , Microsoft, OpenAI, and Oracle. Venice platform shipments have begun for approximately 240 OEM and ODM platforms, up 20% from Turing in the fourth quarter .
Revenue from AI in data centers will significantly exceed revenue from servers, and for the entire year of 2026, the segment's revenue should double. All of this, of course, is within the data center segments. If you look at the client, gaming, and embedded segments, these are smaller parts of the business, perhaps not as important anymore.
But the client segment still generates $2.95 billion in revenue. This is only 7% more year-on-year, but 4% less compared to the previous quarter. For 2027, they predict that PC sales will fall by a double-digit percentage. As for the gaming segment, it has already fallen by 40 % year-on-year and remained at the same level for the quarter.
Regarding embedded systems , we just discussed that. Finally, we see another acceleration in growth. They have over $18 billion in development contracts expected in 2026 and are forecasting accelerated growth in 2027. It's a small business, but it's very, very profitable. Moving to margins, growth will be stable or decline.
Operating margin will increase, so we expect an increase from 29.3% to 32.9% in the fourth quarter. While gross margin will drop from almost 56 to 55. They state that 55% is the target. They did not set any minimum level for 2027. They noted that operating expenses will grow less than half the rate of revenue growth in 2027, and that expansion is being achieved through operating leverage , not gross margin, although they certainly expect gross margin cash to continue to grow significantly.
Now the weak point is free cash flow, only $554 million. We see that inventories increased by $3 billion compared to the previous quarter . Inventory turnover days have also increased. The number of days of accounts receivable turnover increased slightly . And accounts payable now stands at $7.8 billion compared to $2.9 billion in December.
The CFO noted that inventories were built up to meet data center demand, and AMD will continue to invest in inventory and capacity through 2027, but they expect cash conversion to lag behind earnings. Which is quite logical. If they really want to capture all of this demand, then that's how it will be.
But over time, I believe the free cash flow profile and its dollar amount will grow significantly. Looking at the forecast for Q4, revenue is expected to be around $17 billion plus or minus 3%. We usually get a figure of plus or minus $300 million . Now it's 3%, which means $16.5 billion or $17.5 billion.
I wouldn't be surprised to see $17.5 billion , which represents 66% year-over-year growth and a 55% margin. Data centers are expected to grow by 50% compared to the previous quarter. The client and gaming segments will fall by more than 20 % quarter-on-quarter, while embedded systems will grow by double-digit percentages .
Implied non- GAAP EPS should increase by 40%, and implied operating margin should be about 33%, or $5.6 billion. This brings us back to 2027. It is worth expecting about $94 billion in revenue. They are expected to double server processor revenue, which is higher than their previous target of over 70%.
Revenue from AI in data centers will more than double, which is also faster than previously forecast. And again , over 80% of sales are in data centers. Finally, a few takeaways from the call. Demand exceeds supply. Plate packaging and memory are provided for 2027. When asked about their clients and certain investments in them, they said the following.
AMD knows where GPUs are headed. They selectively invest with leading partners. As for memory costs, HBM and component inflation are shared among customers. Regarding the structure of server growth, they said it is mostly units and core count, and only moderate growth when looking at average selling prices .
Regarding the decline in the PC market, they are selling volumes in line with actual sales to end consumers. The offer is shifting towards data centers. Again , the story here is not about PCs. With Intel, maybe. While for Intel, I think the story with its own production is a bit different, with AMD it's all about data center growth, and the company's gross margin profile for 2027 will have to wait until the Q4 call .
So, to sum it up, for me it was a great quarter for AMD. There's a reason why stocks have more than doubled since the beginning of the year. There is also a reason why the shares are currently not worth more than $650 a share. I believe that if the stock had been trading above $600 today before the report, we wouldn't have seen this market reaction.
This is because the stock has rebounded and the company is now coming to an appropriate valuation. The thesis about AMD initially wasn't that "Oh, Nvidia is growing, therefore AMD must be growing." No. We analyzed the company, the forecasts and the management comments, and we knew this would happen.
The acceleration we are seeing now was meant to happen, which is why stocks have risen so much. But, of course, stocks go up a lot, but at some point, if there's a big gap in value, they go down , and the market says, "Okay, this is the right price." The business grows to a valuation, and then the growth or increase in stock value continues.
But this only continues because the company is showing excellent results, which is what we got this quarter and expect in the next ones for AMD. I am a satisfied AMD shareholder. I like what I see. I also like what I heard. Let us know what you think in the comments section below. See you in the next video. See you later.
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