# How AMD makes money

CXProWealth Business Lens · AMD (AMD) · Q2 FY2026

Read from the 10-Q for the period 2026-03-29 to 2026-06-27, filed 2026-08-05 with the SEC (accession 0000002488-26-000123): https://www.sec.gov/Archives/edgar/data/2488/000000248826000123/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $11.5B (+50.1% on the year)
- Operating income: $2.0B (operating margin 17.3%)
- Net income: $2.3B (net margin 19.9%)
- Gross margin: 53.8%
- Free cash flow: $1.6B (13.5% of revenue)
- Cash conversion (operating cash flow / net income): 1.03x
- Capital expenditure: 7.0% of revenue

## Where the money goes (Q2 FY2026)

- Data Center → Net revenue: $6.7B
- Client and Gaming → Net revenue: $3.8B
- Embedded → Net revenue: $977.0M
- Net revenue → Total cost of sales: $5.3B
- Total cost of sales → Cost of sales: $5.1B
- Total cost of sales → Amortization of acquisition-related intangibles: $260.0M
- Net revenue → Gross profit: $6.2B
- Gross profit → Total operating expenses: $4.2B
- Total operating expenses → Research and development: $2.5B
- Total operating expenses → Marketing, general and administrative: $1.4B
- Total operating expenses → Amortization of acquisition-related intangibles: $284.0M
- Gross profit → Operating Income (Loss), Total: $2.0B
- Operating Income (Loss), Total → Interest expense: $37.0M
- Operating Income (Loss), Total → Income (loss) from continuing operations before income taxes and equity income: $2.0B
- Other income (expense), net → Income (loss) from continuing operations before income taxes and equity income: $598.0M
- Income (loss) from continuing operations before income taxes and equity income → Income tax provision (benefit): $252.0M
- Income (loss) from continuing operations before income taxes and equity income → Income from continuing operations, net of tax: $2.3B
- Equity income in investee → Income from continuing operations, net of tax: $6.0M
- Income from continuing operations, net of tax → Income (loss) from discontinued operations, net of tax: $8.0M
- Income from continuing operations, net of tax → Net income: $2.3B

## Where the revenue comes from

### Products and services (Segment Reporting (Details))

| Member | Value | Share |
|---|---:|---:|
| Client | $3.1B | 26.5% |
| Gaming | $779.0M | 6.8% |

The members do not sum to total revenue.

### Segments (Segment Reporting (Details))

| Member | Value | Share |
|---|---:|---:|
| Data Center | $6.7B | 58.2% |
| Client and Gaming | $3.8B | 33.3% |
| Embedded | $977.0M | 8.5% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Net revenue | $11.5B | 100% |
| Cost of sales | $5.1B | 44.0% |
| Amortization of acquisition-related intangibles | $260.0M | 2.3% |
| **Total cost of sales** | $5.3B | 46.2% |
| **Gross profit** | $6.2B | 53.8% |
| Research and development | $2.5B | 21.9% |
| Marketing, general and administrative | $1.4B | 12.1% |
| Amortization of acquisition-related intangibles | $284.0M | 2.5% |
| **Total operating expenses** | $4.2B | 36.5% |
| **Operating Income (Loss), Total** | $2.0B | 17.3% |
| Interest expense | ($37.0M) | 0.3% |
| Other income (expense), net | $598.0M | 5.2% |
| **Income (loss) from continuing operations before income taxes and equity income** | $2.6B | 22.1% |
| Income tax provision (benefit) | $252.0M | 2.2% |
| Equity income in investee | $6.0M | 0.1% |
| **Income from continuing operations, net of tax** | $2.3B | 20.0% |
| Income (loss) from discontinued operations, net of tax | -$8.0M | 0.1% |
| **Net income** | $2.3B | 19.9% |
| Basic earnings from continuing operations | $1 | 0.0% |
| Basic earnings (loss) from discontinued operations | -$0 | 0.0% |
| **Basic earnings per share** | $1 | 0.0% |
| Diluted earnings from continuing operations | $1 | 0.0% |
| Diluted earnings (loss) from discontinued operations | -$0 | 0.0% |
| **Diluted earnings per share** | $1 | 0.0% |
| Basic | 1,632,000,000 |  |
| Diluted | 1,659,000,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | — | -$2.0B | -$3.1B | -$692.0M | $624.0M | -$1.3B |
| FY2009 | — | $664.0M | $293.0M | $473.0M | $466.0M | $7.0M |
| FY2010 | $6.5B | $848.0M | $471.0M | -$412.0M | $148.0M | -$560.0M |
| FY2011 | $6.6B | $368.0M | $491.0M | $382.0M | $250.0M | $132.0M |
| FY2012 | $5.4B | -$1.1B | -$1.2B | -$338.0M | $133.0M | -$471.0M |
| FY2013 | $5.3B | $103.0M | -$83.0M | -$148.0M | $84.0M | -$232.0M |
| FY2014 | $5.5B | -$155.0M | -$403.0M | -$98.0M | $95.0M | -$193.0M |
| FY2015 | $4.0B | -$481.0M | -$660.0M | -$226.0M | $96.0M | -$322.0M |
| FY2016 | $4.3B | -$373.0M | -$498.0M | $81.0M | $77.0M | $4.0M |
| FY2017 | $5.3B | $127.0M | -$33.0M | $12.0M | $113.0M | -$101.0M |
| FY2018 | $6.5B | $451.0M | $337.0M | $34.0M | $163.0M | -$129.0M |
| FY2019 | $6.7B | $631.0M | $341.0M | $493.0M | $217.0M | $276.0M |
| FY2020 | $9.8B | $1.4B | $2.5B | $1.1B | $294.0M | $777.0M |
| FY2021 | $16.4B | $3.6B | $3.2B | $3.5B | $301.0M | $3.2B |
| FY2022 | $23.6B | $1.3B | $1.3B | $3.6B | $450.0M | $3.1B |
| FY2023 | $22.7B | $401.0M | $854.0M | $1.7B | $546.0M | $1.1B |
| FY2024 | $25.8B | $1.9B | $1.6B | $3.0B | $636.0M | $2.4B |
| FY2025 | $34.6B | $3.7B | $4.3B | $7.7B | $974.0M | $6.7B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +34.3% (year before +13.7%): accelerating
- Operating income: +94.4% (year before +373.8%): slowing
- Net income: +164.2% (year before +92.2%): accelerating
- Free cash flow: +180.0% (year before +114.5%): accelerating

## Operating figures stated in the filing

- Client processor unit shipment growth, year over year: 34.0% (as of 2026-06-27). "primarily driven by a 34% increase in unit shipments of client processors, partially offset by a 6% decrease in average selling price of client processors" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Client processor average selling price decline, year over year: 6.0% (as of 2026-06-27). "partially offset by a 6% decrease in average selling price of client processors" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- International sales share of net revenue: 70.0% (as of 2026-06-27). "International sales, based on billing location of customers who purchased directly from us, were 70% and 71% of net revenue for the three months ended June 27, 2026 and June 28, 2025, respectively" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- International sales share of net revenue: 71.0% (as of 2025-06-28). "International sales, based on billing location of customers who purchased directly from us, were 70% and 71% of net revenue for the three months ended June 27, 2026 and June 28, 2025, respectively" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

## Key insights

### Data Center earns more than AMD's entire operating profit

Data Center's $2.10B of segment operating income equals 105.7% of AMD's $1.99B total, so it carries the costs no segment is charged for.

Data Center made $2.10B of operating income on $6.72B of revenue, a 31.3% segment margin. Its revenue grew 107.4%, lifting its share of company revenue 16.08 points to 58.2%. Client and Gaming made $582M on $3.84B, a 15.2% margin, and Embedded made $386M on $977M. _(from the filing)_
The three segments add up to more than the company total because AMD keeps some costs out of them. The filing's All Other line holds mainly amortization of acquisition-related intangibles and stock-based compensation, costs the chief executive does not use to judge segment performance. _(from the filing)_
Analysis: Data Center is not only the largest segment but the one whose profit covers the cost of past acquisitions and of paying staff in shares. The filing reports a Data Center operating loss in the year-earlier quarter, so the company's swing from loss to profit runs almost entirely through this one segment. _(analysis)_

### Gross margin's 14-point jump starts from a depressed base

Gross margin rose to 53.8% from 39.8%, but the earlier quarter carried export-control charges; against 50.2% in the quarter before them, the gain is smaller.

Gross margin was 53.8% against 39.8% a year earlier, a change of 13.97 points, and gross profit grew 102.8% to $6.20B on revenue growth of 50.1%. The filing attributes the increase to the absence of inventory and related charges tied to the U.S. export control on an Instinct GPU for China, recorded in the year-earlier quarter, and to a favorable mix with more Data Center revenue. _(from the filing)_
Over the past five quarters the run rate is clearer. Gross margin was 50.2% in the first quarter of last year, before the charge, then 51.7%, 54.3% and 52.8% in the three quarters before this one. _(from the filing)_
Analysis: the year-on-year jump overstates the change in the business. Sequentially, margin moved up from 52.8% and sits below the 54.3% reached two quarters earlier. The mix effect is real, since Data Center keeps gaining share, but the sequential trend is the cleaner measure of progress than a comparison with a charge-hit quarter. _(analysis)_

### Investment gains, not chips, lifted net profit above operating profit

Other income of $598M, equal to 30% of operating income and mostly unrealized gains on newly listed holdings, put net margin at 19.9% against 17.25% operating.

Net income was $2.30B, above operating income of $1.99B. Other income was $598M against $98M a year earlier, which the filing attributes mainly to unrealized gains from the public market listing of equity securities AMD had held privately. That equals 23.4% of pre-tax income of $2.55B. _(from the filing)_
The pattern is not new. A year earlier, net income of $872M came alongside an operating loss of $134M, because a one-off income tax benefit of $834M, mostly the release of uncertain tax positions, was larger than the $768M of income from continuing operations. _(from the filing)_
Analysis: for two years running, the net profit line has been shaped by items that do not come from selling chips: a tax release then, investment gains now. Unrealized gains move with the share prices of the holdings, so operating income is the steadier measure of what the business earned in the quarter. _(analysis)_

### Profit turned positive while free cash flow fell

Operating income swung to $1.99B from a $134M loss, yet free cash flow fell to $1.56B from $1.73B as capital spending rose to $808M.

Operating cash flow rose to $2.37B from $2.01B a year earlier. Capital spending rose faster, to $808M from $282M, so it absorbed 34.2% of operating cash flow against 14.0% a year earlier. Free cash flow was $1.56B, 13.5% of revenue, against $1.73B, 22.5% of revenue, a year earlier. _(from the filing)_
The six-month cash statement names other demands on cash: prepayments of supply agreements raised prepaid expenses and other assets, while a rise in accounts payable, which the filing puts down to the timing of payment obligations, offset them. The filing also lists purchase commitments for wafers, substrates and components, and data center leases yet to commence. _(from the filing)_
Analysis: cash is being spent ahead of shipments the company has committed to support, so cash trails profit for now. Free cash flow was $2.57B in the quarter before, so this is a single-quarter step down, not yet a trend. Over six months, part of operating cash flow came from paying suppliers later, a source that does not repeat indefinitely. _(analysis)_

### Competitive edge

- **Engineers, not factories, absorb AMD's investment** Capital spending of $808M was 7.0% of revenue and 32.0% of the $2.53B research budget, because foundries own the fabs and AMD owns the designs.
- **Embedded earns a 39.5% margin on 8.5% of sales** Embedded's $386M of operating income on $977M of revenue is the highest segment margin of the three and equals 19.4% of company operating income.
- **OpenAI and Meta are tied in through warrants** Multi-year GPU deployment agreements with OpenAI and Meta come with warrants that vest only as purchases reach milestones, so dilution arrives only with the volume.

### What to watch

- **Rivals compete on software lock-in and price** The filing names Nvidia's proprietary software ecosystem and Intel's aggressive pricing as threats to share and margins, while Data Center is 58.2% of revenue.
- **A few large buyers, some needing financing** AMD expects a small number of customers to keep providing much of its revenue, and warns AI buyers may lack power, capacity or capital to deploy.
- **Spending commitments run ahead of a cyclical market** AMD is committing to supply, prepayments and leases before demand arrives, in an industry the filing calls highly cyclical, where its annual operating income once fell to $401M.

## Operating income by segment

- Data Center: $2.1B (105.7% of operating income)
- Client and Gaming: $582.0M (29.2% of operating income)
- Embedded: $386.0M (19.4% of operating income)

## Investor view

**Data Center's $2.10B operating profit was more than AMD's whole operating profit this quarter, once unassigned costs are counted**

### How it makes money

AMD designs processors and sells them through three segments. Data Center, which sells server CPUs and AI accelerators, brought in $6.72B of the quarter's $11.54B net revenue, 58.2%. Client and Gaming, which sells PC processors, graphics cards and custom console chips, brought in $3.84B. Embedded, which sells CPUs, FPGAs and adaptive chips built into other companies' equipment, brought in $977M. _(from the filing)_
AMD does not make its own chips. It uses "third-party wafer foundries to fabricate the silicon wafers for all of our products" and outside partners to assemble and test them. So the cost of a chip is mostly what AMD pays its suppliers, $5.33B of total cost of sales this quarter, while its own spending goes into design: research and development was $2.53B, 21.9% of revenue. _(from the filing)_
The segments earn at very different rates. Data Center made $2.10B of operating income on $6.72B of revenue, a 31.3% segment margin. Embedded made $386M on $977M, 39.5%. Client and Gaming made $582M on $3.84B, 15.2%. Costs AMD does not assign to any segment, mainly amortization of acquired intangibles and stock-based compensation, sit in an "All Other" line, which is why the segments add up to more than the $1.99B company total. _(from the filing)_
Most of the business is billed outside the United States but priced in dollars. International sales, by the billing location of direct customers, were 70% of net revenue this quarter against 71% a year earlier, and the filing says sales were in dollars: "Substantially all of our sales transactions were denominated in U.S. dollars." _(from the filing)_

### What shifted

Net revenue grew 50.1%, to $11.54B from $7.69B a year earlier. Data Center did most of it: its revenue grew 107.4% to $6.72B and its share of the total rose 16.08 points to 58.2%. The filing puts the increase down to demand for its EPYC server processors and Instinct GPUs. Embedded grew 18.6% to $977M as "demand strengthened across end markets." _(from the filing)_
Gross margin was 53.8%, up 13.97 points from 39.8% a year earlier, and gross profit grew 102.8% to $6.20B. The filing gives two reasons: the year-earlier quarter carried inventory and related charges for an Instinct GPU caught by the U.S. export control on China, and this quarter's mix leaned further toward Data Center. Part of the jump is the absence of a one-off charge, not only a better business. _(from the filing)_
Operating costs grew more slowly than sales. Total operating expenses rose 31.9% to $4.21B, so they fell 5.03 points to 36.5% of revenue. Research and development grew 33.5%, which the filing ties to headcount "in support of our continued focus on our AI strategy", and marketing and administration grew 41.4% on go-to-market spending. Operating income was $1.99B, against an operating loss of $134M a year earlier. _(from the filing)_
Net margin, 19.9%, sat above the 17.25% operating margin because of items below the operating line. Other income was $598M against $98M, mostly unrealized gains when companies AMD had invested in privately listed on public markets. The tax line flipped from an $834M benefit a year earlier, a one-off release of uncertain tax positions, to a $252M provision. Net income was $2.30B against $872M. _(from the filing)_
Inside Client and Gaming the two halves moved apart. Client revenue reached $3.06B on a 34% rise in processor units, partly offset by a 6% fall in average selling price as the mix shifted toward mobile chips and away from desktop. Gaming revenue was $779M and fell on lower semi-custom console revenue. The segment's operating income of $582M was lower than a year earlier, which the filing attributes to higher operating expenses. _(from the filing)_

### Risks in the filing

Competition. The filing names Nvidia as using its data center GPU position, financial resources and "proprietary software ecosystem" to influence customers, and Intel as pricing aggressively and offering special incentives to AMD's customers. It also names Arm-based designs and customers building their own AI chips, and says the Nvidia and Intel partnership announced last September may add pricing pressure. _(from the filing)_
Customer concentration and customer financing. AMD says "a small number of customers" will continue to account for a significant part of its revenue and receivables, and that losing one would hurt materially. It adds that AI customers may lack data center capacity, power or capital, and may ask vendors for alternative financing or deferred payment. _(from the filing)_
Supply. AMD relies on TSMC for all of its most advanced CPU and GPU wafers and on joint ventures for most assembly and test. It names an industry-wide memory shortage that is raising prices, and says it keeps entering long-term purchase commitments and prepayments ahead of demand, so a misjudged forecast could leave excess inventory and higher costs. _(from the filing)_
Export controls and trade. A U.S. license requirement covers shipments of certain AI chips to China. AMD has received some licenses, but sales there depend on customer demand, China's own import rules and further licensing, and chips shipped under the newer licenses must pass a U.S. inspection that brings a tariff on re-import. _(from the filing)_
Two of these risks already show in the figures. The export-control risk produced the year-earlier operating loss, and its absence is a large part of this year's margin gain. The supply-commitment risk shows in the cash statement, where supplier prepayments and capital spending are rising ahead of the shipments they are meant to serve. Customer concentration does not appear as a number in the quarter, but the anchor-customer warrants make it a structural feature of Data Center. _(analysis)_

## Founder view: mechanisms

### Mix shift toward data center lifts every margin

The same design teams and the same foundry produce chips for very different buyers. Data center buyers pay for performance per watt and total cost of ownership, so a server or accelerator chip earns more gross profit per wafer than a PC chip. When the revenue mix tilts toward that buyer, the blended margin rises without raising the price of any single product. _(analysis)_

### Rent the factory, own the design

AMD outsources wafer production to foundries and assembly to partners, and keeps the architecture, the intellectual property and the customer relationship. Its fixed investment goes into engineers rather than fabs, so most product cost rises and falls with units shipped, and capital needs stay light compared with a chipmaker that runs its own factories. _(analysis)_

### Operating leverage on a fixed design budget

A chip is paid for in engineering years before its first sale. Once a product wins, extra revenue needs more wafers but not proportionally more engineers, so operating expenses grow slower than revenue and each added dollar of sales leaves more operating profit. The same structure cuts the other way when revenue falls, because the design budget does not shrink with it. _(analysis)_

### Trading equity for anchor customers

AMD gave OpenAI and Meta warrants on its own shares that vest only as each buys AMD GPUs and as stock conditions are met. The customer gets upside if AMD succeeds; AMD gets a large, named buyer to justify committing supply, leases and engineering years ahead. The dilution is paid only if the volume arrives, which aligns the cost with the outcome. _(analysis)_

## Member research

Signed-in members read, on the page: what AMD's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- AMD 10-Q for the period to 2026-06-27: https://www.sec.gov/Archives/edgar/data/2488/000000248826000123/ (2026-08-05)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02