AMD lifts its 2027 outlook again, and the build-up behind it is already costing cash

Advanced Micro Devices now expects its revenue to grow by more than 80% in 2027, management said when it reported its latest results. Add the nine months already reported to the midpoint of the fourth-quarter range, grow that at the guided rate, and next year's revenue would exceed about $93.9 billion, a figure calculated from the reported numbers rather than one the company gave. Most of it would come from data centres, where AMD sells server processors and AI accelerators to cloud companies. The latest quarter shows both why management feels able to say this and what building toward it already costs.

The outlook has been lifted in stages through the year. In February the company described data centre revenue growing by more than 60% a year and an AI business reaching tens of billions of dollars by next year. By August it was guiding to server revenue up more than 70% next year and data centre revenue more than doubling. Now it expects server revenue to double and the data centre business to supply the great majority of all revenue. In the chief executive's words, the new figure is "more than twice the long-term financial model" set out at the company's analyst day a year earlier.

The record behind those words is good. In each of the three quarters of 2026 so far, revenue finished above the top of the range AMD had guided a quarter earlier. The fourth-quarter guide is a bigger step again: about $3.6 billion of extra revenue in a single quarter, roughly twice the rise from the second quarter to the third, both calculated from the reported figures.

Selling that much more has to be prepared for, and the preparation shows up in cash. Free cash flow, the cash from operations left after spending on equipment, fell to $554 million last quarter, well below the quarter before. Inventory alone took almost $3 billion, and money owed by customers took a large slice more. Higher bills owed to suppliers handed part of it back, so AMD's suppliers are financing some of the build.

The company ties the inventory to data centre demand and says it will keep investing in inventory and capacity to support next year's growth. That is a fair reading: a business guiding to a much larger fourth quarter has to hold the chips before it can ship them, and one quarter of weak cash conversion is not a pattern. Debt also more than doubled during the quarter, after AMD sold new notes.

Profit tells a happier story than cash. Operating margin under standard accounting, which counts every operating cost, reached 21% last quarter against 14% a year earlier. The mix that is lifting revenue also caps gross margin. AMD guides its adjusted gross margin to about 55% for the fourth quarter, the bottom of the long-term range it set out, because that is the quarter AI accelerator sales overtake server processor sales, and the finance chief said the AI systems carry a margin a little below the company average.

A newer cost sits below operating profit. AMD issued warrants, rights to buy its shares, to customers under a customer agreement, and it now revalues them every quarter as its share price and the estimated probability of the conditions being met change. Last quarter that cost $1.1 billion, or 66 cents a share: on its own more than the 63-cent gap between earnings per share of $1.46 under standard accounting and $2.09 on the company's adjusted basis, which is narrower because the adjusted figure also uses a normalised tax charge. The charge involves no cash and is excluded from adjusted results and free cash flow, and the finance chief expects it to grow as AMD and its customers progress under the agreement. How many new shares the warrants may eventually add will be guided only next year.

Management's case for next year rests on demand it says still exceeds the supply it can secure, and it is working with suppliers to get more. Last quarter's numbers are consistent with that case: revenue ahead of guidance and profit rising faster than sales. They also show the order of events in a ramp of this size, with inventory and receivables arriving before the revenue they are meant to support, alongside more debt and a growing non-cash warrant charge.