AMD designs semiconductors and owns no wafer fabs. The filing states that third-party foundries produce the wafers for "all of our products", with TSMC producing every CPU and GPU wafer at 7 nm or smaller, and that "Nearly all product assembly and final testing" takes place at third-party facilities in China, Malaysia and Taiwan. Revenue was $34,639 million in FY2025, up 34.3%, and "Substantially all of the Company's revenue is derived from product sales". Custom products and development services, recognised over time, were 9% of revenue, against 8% in FY2024 and 25% in FY2023.
The business in one page
From the first quarter of FY2025 the Client and Gaming segments were merged, with prior periods recast, leaving three segments: Data Center at $16,635 million, Client and Gaming at $14,550 million and Embedded at $3,454 million. The "All Other" category, worth $4,007 million of costs excluded from segment results, is not a segment. By billing location the United States is 32.8% of revenue and China including Hong Kong 22.4%; the filing does not disclose the end market. No customer exceeded 10% of consolidated revenue in FY2025 or FY2024. Employees at year end: approximately 31,000.
Four items have no counterpart in the comparative years: discontinued operations for the ZT Manufacturing Business sold to Sanmina, contributing $66 million of net income; net inventory charges of approximately $440 million on export controls over Instinct MI308 products, which the filing says had no equivalent in FY2024 or FY2023; a warrant granted to OpenAI over up to 160 million shares, with no accounting effect in FY2025; and, after year end, a guarantee of up to $4.1 billion on a commercial partner's data centre lease obligations.
What we think matters
- Growth is broad and, per the filing, mostly organic
- Net cash and interest cover leave the balance sheet unlevered
- Cash conversion above reported income
- FY2025 earnings rest partly on items that do not repeat
- Goodwill sits in the one segment that is shrinking
- Dilution outruns the buyback
How Advanced Micro Devices makes money
Competitive advantage
Gross margin excluding amortisation of acquisition-related intangibles was 52.5% in FY2025: (34,639 - 16,456) / 34,639. The filing reports approximately 7,200 US patents and approximately 12,600 issued worldwide.
Return on invested capital excluding goodwill and acquisition intangibles is 34.0%; on total invested capital it is 5.2%. The $41,831 million of goodwill and acquisition intangibles is the whole of the gap.
Embedded earned the highest segment operating margin of the group in each of the three years, 36.0% in FY2025, and in semi-custom the filing states: "We are the market share leader in semi-custom game console products".
The limits are in the filing itself. It names Intel and Nvidia as the main Data Center competitors, says of Nvidia that it "leverages its market position in data center GPU, financial resources, and proprietary software ecosystem", and adds that some customers "are internally developing their own data center microprocessor products and accelerator products". The Data Center operating margin fell from 27.7% to 21.7% on revenue up 32.2%.
Pricing power
The only explicit price data concerns Client: revenue up 51% on "a 31% increase in unit shipments of processors and a 15% increase in average selling price of processors". In logarithms, volume explains 65.9% of the growth and price 34.1%.
At group level, gross margin excluding intangibles amortisation went from 53.0% to 52.5%. The net MI308 charge of approximately $440 million is worth 1.3 points; excluding it the margin would have been 53.8%, an improvement of 0.7 points that the filing attributes to product mix.
Other signals point the other way. Marketing and advertising expenses are reported at approximately $2.4 billion against approximately $1.2 billion in FY2024, and accrued marketing programs with customers rose 36.8% to $1,454 million, above revenue growth.
The filing reports that Intel "uses its microprocessor market position to price its products aggressively" and that such practices "have reduced and may reduce our unit sales and average selling prices". It discloses no average selling prices for Data Center or Embedded.
Transparency of growth
Growth is described as predominantly organic. The ZT Design Business results are "not material", the other acquisitions total $90 million of consideration with results that are "not material", and the ZT Manufacturing Business is in discontinued operations.
The filing does not quantify the dollar contribution of acquisitions to revenue, nor the revenue of individual Data Center product lines, so Instinct GPU growth cannot be separated from EPYC CPU growth.
The three-year series shows the mix moving sharply. Gaming fell from $6,212 million in FY2023 to $2,595 million in FY2024 and recovered to $3,910 million. Embedded went from $5,321 million to $3,454 million over two years, down 35.1%.
Scalability
Operating income rose 94.4% to $3,694 million on revenue up 34.3%, but from an FY2024 operating margin of 7.4%. Before intangibles amortisation the increase is 38.5%: 5,948 / 4,294 - 1.
Leverage comes from two lines. Research and development grew 25.3%, from 25.0% to 23.4% of revenue. Amortisation of acquisition-related intangibles fell 5.8% in absolute terms.
Against that, cost of sales excluding amortisation grew 35.8%, faster than revenue, and marketing, general and administrative expenses grew 51.5%, or 1.50 times the pace of revenue.
Catalysts identified in the filing
- The OpenAI purchase agreement
The filing describes "a product purchase agreement with OpenAI OpCo, LLC, (OpenAI) to deploy 6 gigawatts of AMD GPUs", the first gigawatt based on MI450. It does not quantify expected revenue or the delivery schedule beyond that first gigawatt. The warrant over up to 160 million shares is tied to the same contract and will be carried as a liability until the conditions for equity classification are met.
- Rack-scale systems
AMD previewed the "Helios" platform, integrating CPUs, GPUs and networking, and retained the ZT Design Business for systems design while selling the manufacturing operation. Sanmina becomes "our preferred partner for manufacturing capabilities in building complex AI solutions" under a five-year agreement.
- Licensed MI308 sales in China resuming
Shipments restarted in the fourth quarter and approximately $360 million of charges were reversed. Further sales depend on "customer demand, China's import control rules and our ability to obtain licenses", and on the possible 15% levy on revenue from licensed sales.
- Sanmina earn-out
AMD may receive up to $450 million of additional consideration through 2028 and has already recorded $332 million as a receivable, subject to impairment assessment at each reporting date.
- Capacity already contracted for FY2026
Purchase commitments for FY2026 are $8,498 million, and data centre and other real estate leases commencing in 2026 are worth $1.3 billion. The filing presents both as contractual obligations and does not link them to sales forecasts.
Financial analysis
Figures for 3 fiscal years, taken from the Key Metrics tables of each annual report. When a later filing restates a figure, we use the figure reported for that year's own filing.
Key metrics
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Revenue | $22.7B | $25.8B | $34.6B |
| Gross margin | 46.1% | 49.4% | 49.5% |
| Operating margin | 1.8% | 7.4% | 10.7% |
| Net margin (GAAP) | 3.8% | 6.4% | 12.5% |
| Operating cash flow | $1.67B | $3.04B | $6.49B |
| Capex | $0.55B | $0.64B | $0.97B |
| Free cash flow | $1.12B | $2.41B | $5.52B |
| Stock-based compensation | $1.38B | $1.41B | $1.64B |
| Dividends + buybacks | $0.99B | $0.86B | $1.32B |
| Net cash | – | $3.41B | $7.33B |
| Total debt | – | $1.72B | $3.22B |
| Shareholders’ equity | $55.9B | $57.6B | $63.0B |
| Effective tax rate | -68.1% | 18.8% | -2.5% |
| ROIC (total invested capital, year-end) | – | 2.8% | 5.2% |
Key risks
The main weaknesses and risks identified in the latest annual report, in the order the report presents them.
- FY2025 earnings rest partly on items that do not repeat
Net income of $4,335 million includes an $853 million release of uncertain tax positions, which takes the effective tax rate to -2.5%, and $366 million of net gains on long-term investments. Normalised for taxes at 21% and for those gains, income from continuing operations falls to approximately $3,007.5 million, against $4,269 million reported. Cash taxes paid were $884 million, 21.2% of pre-tax income, so the book benefit was not a cash receipt.
- Goodwill sits in the one segment that is shrinking
Embedded carries $21,072 million of goodwill, 83.9% of the total, while its revenue fell 35.1% over two years and segment operating income went from $2,628 million to $1,243 million. Goodwill is 17.0 times that income. The FY2025 and FY2024 impairment tests were qualitative, and goodwill plus acquisition intangibles are 54.4% of total assets.
- Dilution outruns the buyback
Stock-based compensation of $1,638 million is 4.7% of revenue, 44.3% of operating income and 29.7% of free cash flow, with $3,835 million of unrecognised cost still to come. Shares outstanding rose 0.5% despite $1,923 million spent on repurchases and tax withholding. The OpenAI warrant over up to 160 million shares, struck at $0.01, is a further 9.8% of the share count.
- China exposure has already cost margin once
China including Hong Kong is $7,751 million of revenue, 22.4% by billing location. The MI308 licence requirement produced approximately $800 million of inventory and related charges, of which approximately $360 million was later reversed, for a net $440 million, worth 1.3 points of gross margin. The filing also reports an expectation voiced by US officials that the government "will receive 15% of the revenue generated from licensed MI308 sales to China", with no published regulation.
- Working capital and commitments are expanding faster than revenue
Inventories rose 38.1% to $7,920 million, with raw materials from $351 million to $909 million and finished goods from $1,094 million to $2,243 million: 176 days of inventory on year-end balances. Inventory valuation is the auditor's only Critical Audit Matter. Non-cancellable purchase commitments of $12,166 million, $8,498 million of it falling in FY2026, exceed cash and marketable securities.
Open questions the filing does not answer
- How much of Data Center's $16,635 million comes from Instinct GPUs and how much from EPYC CPUs, and at what respective margins? The filing discloses no revenue by product line, so AI growth cannot be separated from server CPU growth.
- What revenue and what timetable does the OpenAI contract carry beyond the first gigawatt, and which share price thresholds vest the warrant over 160 million shares?
- Who is the commercial partner whose leases AMD guaranteed for up to $4.1 billion after year end, and what is its commercial relationship with AMD?
- On what assumptions did the qualitative test rule out an impairment of the $21,072 million of Embedded goodwill, against segment operating income of $1,243 million?
- What part of the inventory build concerns products exposed to new export controls? The filing discloses inventory by category but not by regulatory exposure.
- How are executive compensation, director independence and the ownership structure arranged? The filing defers all of it to the 2026 proxy statement, which is not part of the document.
At the $214.99 close of December 27, 2025 and 1,630,410,843 shares, the market valued AMD at $350,522 million, 80.9 times net income and 116.5 times income normalised for taxes at 21% and for investment gains. The free cash flow yield is 1.57%, and 1.11% net of stock-based compensation. A 5% free cash flow yield at the same capitalisation would require $17,526 million of free cash flow, 3.18 times the FY2025 figure, or compound growth of 26.0% a year for five years. The filing does not offer a long enough series to judge whether that rate is sustainable.
Three conditions can be checked in the next filings. Data Center growth has to turn into segment margin rather than volume alone: the margin fell from 27.7% to 21.7%, and to 24.3% excluding the MI308 charge, on revenue up 32.2%. The OpenAI contract has to generate revenue without the warrant and the guarantees granted to partners absorbing its value. And dilution from stock-based compensation, 29.7% of free cash flow, has to be offset by repurchases without consuming most of that cash flow: shares still rose 0.5% after $1,923 million spent on buybacks and tax withholding.
Strengths
- Growth is broad and, per the filing, mostly organic
Revenue rose 34.3% to $34,639 million, against 13.7% in FY2024, the only other growth rate the filing allows one to calculate. Data Center rose 32.2% and Client and Gaming 50.8%. The ZT Design Business results are described as "not material", the other acquisitions of the year total $90 million of consideration, and the ZT Manufacturing Business sits in discontinued operations outside revenue.
- Net cash and interest cover leave the balance sheet unlevered
Cash and marketable securities of $10,552 million against financial debt of $3,222 million leave $7,330 million of net cash, or $6,546 million including lease liabilities. Interest cover is 28.2 times on operating income and 51.1 times on EBITDA. Debt to EBITDA is 0.48 times, 0.60 times including leases.
- Cash conversion above reported income
Free cash flow from continuing operations was $5,519 million, 129.3% of income from continuing operations, after $2,405 million in FY2024 and $1,121 million in FY2023. The excess over reported income comes from approximately $4.6 billion of non-cash items, chiefly $2,254 million of intangibles amortisation and $1,638 million of stock-based compensation, against roughly $2.4 billion absorbed by working capital.
- Returns on tangible capital above 30%
Excluding the $41,831 million of goodwill and acquisition-related intangibles, return on invested capital is 34.0% in FY2025 against 32.7% in FY2024. On total invested capital the same measure is 5.2% and 2.8%: the gap is the acquisition price of Xilinx and the other deals, not the operating economics.
- No single customer dominates revenue
No customer exceeded 10% of consolidated revenue in FY2025 or FY2024, against one Client and Gaming customer at 18% in FY2023. All three segments were profitable at the operating level in all three years, and Embedded earned the highest segment margin of the group each year, 36.0% in FY2025.
Last year’s watch-list, checked against this filing
| What we flagged | What happened | Result |
|---|---|---|
| 2024 restructuring plan - reduction of approximately 4% of headcount, charges of $186 million | "substantially completed in the first quarter of fiscal year 2025"; no additional charges in FY2025; remaining liability down from $89 million to $10 million | DONE - no charges beyond the $186 million |
| ZT Systems acquisition and divestiture of the manufacturing business - consideration of $4,409 million, including $361 million of contingent consideration | Sale to Sanmina closed on October 27, 2025 for $2.4 billion in cash plus shares, $1.4 billion received net of cash divested and adjustments; contingent consideration settled at $482 million | EXCEEDED - contingent consideration $121 million above the initial estimate, up 33.5% |
| Share repurchase programme - new $6 billion authorisation in May 2025, $14 billion in total | $1.3 billion used in FY2025, none in the fourth quarter, $9.4 billion remaining | NOT MEASURABLE - the filing states no spending target |
| Acquired in-process research and development - $162 million not amortised at December 28, 2024 | Projects completed and amortisation started in April 2025 over five years | AS STATED |
| Commercial paper programme of up to $3.0 billion | $950 million issued in the first quarter and repaid in the second; no balance at year end | DONE |
| AI accelerator roadmap - "annual cadence of leadership for AMD Instinct solutions, beginning with the AMD Instinct MI350 Series GPUs in 2025" | MI350 shipping in FY2025 according to the filing | NOT YET MEASURABLE - volumes and timing against plan not verifiable |
What to watch in the next filing
- Data Center segment operating margin. Below 20% on an annual basis, from 21.7% in FY2025, would weaken the case for scalable AI economics.
- Days of inventory. Above 200, from 176 in FY2025, or new export-related inventory charges, would point to a second build-up like the MI308 episode.
- Free cash flow net of stock-based compensation. Below the FY2025 figure of $3,881 million while revenue grows would signal deteriorating earnings quality.
- Embedded segment operating income. Below $1,000 million a year, from $1,243 million, would raise the impairment risk on $21,072 million of goodwill sitting in that segment.
- Shares outstanding. An increase above 1% a year, from 0.5% in FY2025, including any effect of the OpenAI warrant.
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