AMD's data center sales nearly double, but inventory and debt absorb most of the cash

AMD (Nasdaq: AMD) reported third-quarter revenue of $13.4 billion, up 45% from a year earlier, but its free cash flow fell to $554 million from $1.53 billion as inventory, receivables and debt grew, according to its results release of November 3.

Data Center now supplies almost two-thirds of the revenue

Data Center segment revenue was $8.5 billion, up 97% from a year earlier, AMD said. By our calculation that is 63.9% of total revenue, against 47.0% in the third quarter of 2025. Segment operating income was $2.9 billion, up from $1.1 billion.

"We delivered a record quarter with revenue exceeding the high end of our guidance as Data Center segment sales nearly doubled year-over-year," Lisa Su, AMD's chair and chief executive, said in the release.

The other segments moved less. Client and Gaming revenue was $3.7 billion, down 8%, with Gaming down 40% to $773 million. Embedded revenue was $1.1 billion, up 29%.

Profit grew faster than sales, and cash did not

On a GAAP basis, net income was $2.4 billion, up 95%, and diluted earnings per share were $1.46. Non-GAAP earnings per share were $2.09, up 74%.

Cash generation went the other way. Net cash from continuing operations was $1.2 billion in the quarter, compared with $1.8 billion a year earlier. Capital expenditures rose to $648 million from $258 million. Free cash flow, which AMD defines as operating cash flow less capital expenditures, was $554 million, a free cash flow margin of 4%. It was $1.56 billion in the June quarter and $1.53 billion in the third quarter of 2025, when the margin was 17%. The drop from a year earlier is 63.8% (computed).

Where the cash went

AMD's balance sheet shows inventories of $11.5 billion at September 26, up from $7.9 billion at December 27, 2025, an increase of $3.5 billion (computed). Accounts receivable rose to $9.2 billion from $6.3 billion. In the quarter, the cash flow statement shows a $3.0 billion cash outflow for inventories, partly offset by a $2.3 billion increase in accounts payable.

Total debt was $7.1 billion, against $3.2 billion at the end of the June quarter and a year earlier. Cash, cash equivalents and short-term investments rose to $15.8 billion from $13.1 billion at the end of June. The release does not say what the new debt will fund or why inventory grew, and it gives no price for the two acquisitions it lists, World Labs and Taalas.

Guidance points to a larger fourth quarter

For the fourth quarter, AMD expects revenue of about $17 billion, plus or minus 3%. The midpoint is growth of about 66% from a year earlier and 27% from the third quarter, the company said, with non-GAAP gross margin of about 55%, compared with 56% in the third quarter.

Su said the company expects growth "to accelerate further in the fourth quarter as we scale Helios and 'Venice' production." The release says Anthropic, Meta, Microsoft, OpenAI and Oracle Cloud Infrastructure are running workloads on the first Helios rack-scale systems.

A growth rate this high will be judged on cash conversion

We think the quarter shows demand for AMD's data center products, and also what that demand costs to meet. Revenue and profit grew quickly, yet free cash flow was lower than a year earlier because inventory, receivables and debt grew faster than cash came in. In technology we weigh capital spending and cash against revenue, and here the cash figure is the weaker one.

The opportunity is that the inventory is the fourth-quarter shipment plan: if AMD reaches about $17 billion, receivables and inventory should convert to cash. The threat is that stock built ahead of customers' orders ties up more money for longer, and the release does not show how much of the $11.5 billion is committed to buyers. We expect free cash flow to recover in the fourth quarter only if inventory stops growing faster than sales; we would change our view if it keeps rising while revenue meets guidance.

The view in this final section is FinanceInTime's editorial opinion, for information only. It is not investment, tax, legal or other advice, and it does not take your circumstances into account. Forecasts are uncertain and past results do not guarantee future ones.