AMD reported what should have been stellar earnings earlier this week, replete with data center revenue growing by 107 percent year-over-year, a 246 percent beat on the consensus EPS estimate, and a 13 percent growth in adjusted gross margin.
Combined with AMD's earlier disclosure of now controlling around half of the data center CPU market , the earnings announcement should have precipitated a euphoric reaction in the market. Yet, that did not happen, and there are a couple of reasons behind it.
There were a lot of positives in AMD's most recent earnings report even apart from those mentioned above. For instance, the revenue guidance for the third quarter came above the consensus estimate, with AMD expecting "data center sales to accelerate in the second half of 2026."
Even so, the company hiked its CapEx by a massive $808 million, substantially above the consensus estimate of $298 million. Now remember, AMD is a fabless chip designer, and nearly a billion dollar in CapEx is a huge amount, which then acted as a drag on sentiment.
Intriguingly though, AMD's revenue only increased by 13 percent quarter-over-quarter, yet its accounts payables - which measure the amount that a company owes to its suppliers and vendors, and forms a part of typical inventory management cycle - exploded by a whopping 78 percent, rising from $2.99 billion in Q1 to $5.35 billion in Q2.
While there might be intrinsic reasons behind this explosion, prima facie we can surmise that AMD withheld payments to its suppliers to preserve cash, especially as it reported only $1.55 billion in free cash flow for the quarter, while accounts payables increased by $2.36 billion.
If AMD had grown its accounts payables in line with revenue, it would have had to clear $1.97 billion in vendor-related balances, which should have resulted in its free cash flow plunging to -$421.3 million in Q2, all else equal!
Of course, as stated earlier, there are a plethora of reasons why accounts payables might not grow at the same rate as revenue, and there is nothing sinister here. Even so, the fact that the growth in AMD's accounts payables eclipsed the entirety of its free cash flow balance in Q2 merits continued vigilance.
Follow Wccftech on Google to get more of our news coverage in your feeds.