- Leverage & Inverse ETPs
- Why Us
On the 4th of November, American chipmaker – and Nvidia rival – Advanced Micro Devices, Inc (ticker: AMD) reported the results of the third quarter (Q3) of its Fiscal Year (FY) 2025. Despite ostensibly stellar results, the stock price slid 4% in after-hours trading. In fact, on the day before and after the results were released, the stock had dropped as well.
The factors behind this can – perhaps – be collectively referred to as “AI Deal Fatigue”.
Trend AnalysisIn both top and bottom line trends, AMD’s performance over the first nine months (9M) of FY 2025 seem highly encouraging.
Source: Company Information; Leverage Shares analysis
If trends continue, net revenue for the full year will be 31-33% higher than the previous FY while earnings per share would show a solid 97% growth.
To identify accurately which segment of AMD’s business is driving the growth, however, has been made a little complicated. From the current Fiscal Year onwards, the company rolled its “Client” and “Gaming” segments into one reporting segment “Client and Gaming” while leaving the other two segments as-is. The “Client” segment primarily represented its business of CPUs (“Central Processing Units”), APUs (“Accelerated Processing Units”), and chipsets for desktops and notebooks while the “Gaming” segment primarily represented discrete GPUs (“Graphics Processing Units”), semi-custom SoC (“System-on-a-Chip”) products and development services. The “4 segment” reporting system itself was introduced in 2022 to reflect the company’s changing focus.
The recent change in reporting structure is an initial slight cause for concern particularly because the “Client” segment had suffered substantial operating income losses in 2023. Additionally, this makes historical segment analysis difficult: restated segment results would likely be made available only through the Full Year results early next year. For the purposes of this analysis, the operating income of the “Client” and “Gaming” segments being reported are added together while noting that official audited numbers in the FY 2025 full-year report might differ.
The “Client & Gaming” segment showed – by some margin – the best performance among all segments and was primarily driven by sales of Ryzen processers (typically used for professional workstations that require massive processing power and gaming computers) as well as Radeon GPUs (designed for a wide range of uses, from high-end gaming to demanding content creation and AI development). If current trends continue, this segment will effectively negate the 11% Year-on-Year revenue downturn seen in FY 2024 with a 12% increase over FY 2025. On the operating income front, however, there could be as much as a 105% increase over the previous FY: an amount that will likely reflect well on the net income.
In contrast, “embedded” revenue is trending to close the FY either flat or with a 2% decline while the “Data Center” segment – that caters mostly to the client base that took Nvidia to its current multi-trillion-dollar market capitalization – is trending to show a 19% increase over the previous FY. This is a massive fall relative to the previous FY’s growth trend of 94%.
Going by segment-wise revenue share, it seems that AMD hasn’t been able to build upon its massive success in FY 2024, wherein it attracted a substantial uptick in orders from “Data Center” clients.
Source: Company Information; Leverage Shares analysis
A slight 3% drop is perceptible so far, along with a massive uptick in the “Client and Gaming” segment. A key driver of the conviction behind the AI Hype is the ability to sustain and maintain a corporate client base, who typically have highly specific customizations and have a high likelihood of repeating orders. This has been one factor behind the lack of substantial enthusiasm in AMD’s results.
The other factor might be the “AI Circular Deal Machine”.
The “AI Deal Fatigue”As highlighted in the recent article about Meta and Google1, a great bulk of U.S. GDP comes from spending on AI. Central to this spending is a giant multi-trillion-dollar “circular deal machine” which essentially could take various forms: for example, a chipmaker (such as Nvidia or AMD) enters into a deal with an AI provider (such as OpenAI) that leads to the sales of chips either to the latter or to a datacenter company that provide services to the latter. In subsequent iterations, a tech company would buy a massive order of chips from the chipmaker and then given services by the AI provider. In exchange, the chipmaker makes an investment into the AI provider or the datacenter company that could take the form of a direct injection of cash or a provision of shares.
While Nvidia is in the core of this “Circular Deal Machine”, AMD too has been growing here: on the 6th of October, AMD announced2 a strategic partnership with OpenAI wherein the latter will purchase 6 Gigawatts of computing hardware in a deal that AMD states will generate “tens of billions of dollars in revenue” for itself. However, the deal also includes the option for OpenAI to receive 160 million shares of AMD (around 0.1% of its total shares outstanding) structured to vest as specific milestones are achieved, AMD achieving certain share-price targets and OpenAI achieving certain technical and commercial milestones.
This deal exemplifies the “circularity” of the AI sector. Since shares are liquid instruments, it stands to reason that the vesting of shares is a form of payment. Considering the fact that these are traded instruments, there is no present fixed value. A client essentially receiving payment for making a payment to receive goods and services calls into question whether demand is driven by the quality of the product or the quality of the payoff. This has one point of consideration likely behind why investors are being wary of the AI industry currently.
Another factor is on the nature of demand. A long-standing part of the narrative leading to the meteoric rise of chipmakers’ valuation has been that their products are in demand. If so, a deal involving an investment into a company that is typically followed by that company becoming a client doesn’t necessarily help the narrative of there being strong demand. If anything, more so than “organic demand”, this has the markings of a “quid pro quo” arrangement with one leg of consideration tied to the hype being injected into public markets around the participants’ shares.
AMD rather helpfully provides yet another example of hype injection: during the earnings call, AMD Lisa Su stated that this deal with OpenAI could generate more than $100 billion in revenue for the company. Seemingly adding an extra zero into the projected deal value a month after the initial announcement of the deal is an indicator of how deal values are possibly being inflated to drum up investor attention.
At the same time, AI providers are nowhere close to being out of “cash-burn” mode: earlier in March, it was reported3 that OpenAI doesn’t expect to be cash-positive. In this report too, there are signs of possibly implausible value inflation: the source within OpenAI stated that the company generated $3.7 billion in revenue in 2024, expects to make $12.7 billion in revenue in 2025, $29.4 billion in 2026 and projects revenue topping a staggering $125 billion in 2029, i.e. 4 years from now. In numerical terms, the company claims it will achieve nearly a 900% increase in revenue over four years years relative to 2025 and a 3,300% increase over five years relative to 2024!
While substantial examples of AI achievements are presently visible (such as AI-generated videos and chatbots), substantial avenues for commercial and industrial monetization aren’t. These massive deal values being touted by leading players within the “AI Hype” are beginning to strain investors’ credulity.
Forward OutlookThese strains on credulity might have – ordinarily – drawn calls for investigations and demands for moderation in public statements by executives of public companies. However, it is unlikely that this will invoke action at least by the U.S. government; the Trump administration has been championing AI as an economic strength for the country and is possibly loathe to act adversely on the activities of the leading lights of this perceived strength.
However, regardless of whether the Trump administration bats for AI or not, investor conviction seems to have turned on leading tech companies despite their record results and their multi-billion-dollar announcements. AMD certainly isn’t immune from this. Going forward, further rockiness in its trajectory can be expected.
Professional investors in Europe might consider the +3x Long AMD ETP (AMD3) and the -1x Short AMD ETP (FAMDS) during bullish and bearish trends in AMD’s price. To potentially capitalize on major tech stocks seemingly driving the market currently, the 5x Long Magnificent 7 ETP (MAG7) and the -3x Short Magnificent 7 ETP (MAGS) are at hand.
Furthermore, the AMD Options ETP (YAMD) seeks to generate monthly income for investors by directly investing in the respective companies’ shares and selling put options on them. Also available is the Magnificent 7 Options ETP (MAGO), which invests in each Magnificent 7 constituent’s respective Options ETP in an equally-weighted manner.
Footnotes:
Share this:
INVESTOR TYPE:
LOCATION:
Never miss out on important announcements. Get premium content ahead of the crowd. Enjoy exclusive insights via the newsletter only.
