Analysis AMD
AMD's sales hit a record. Why did free cash flow fall 64%?
Inventory and receivables absorbed more cash as sales expanded. Higher payables and stronger earnings offset part of the drain before another forecast sales increase.
AMD's record sales came with more cash tied up in inventory and customer bills. Inventory rose almost $3 billion from June, while quarterly free cash flow fell 64% from a year earlier.
The contrast comes as data-center revenue nearly doubled and the chipmaker prepared for another sales increase. Its fourth-quarter revenue forecast has a $17 billion midpoint, about 27% above the latest quarter.
Five balances explain the cash decline
Research by Ticker Byline shows that five operating asset and liability movements used $3.357 billion of cash in the quarter ended September 26, versus $708 million a year earlier.
The extra $2.649 billion absorbed by those movements was much larger than the $586 million decline in operating cash. Other entries in the cash statement, including net income and noncash adjustments, improved by $2.063 billion.
| Cash measure | 2026 | 2025 |
|---|---|---|
| Continuing operating cash flow | 1,202 | 1,788 |
| Five operating balance movements | -3,357 | -708 |
| Free cash flow | 554 | 1,530 |
Inventory absorbed $2.995 billion, receivables $1.928 billion, and prepaid expenses and other assets another $1.070 billion. Higher accounts payable supplied $2.313 billion, partly offsetting those uses. Accrued and other liabilities supplied another $323 million.
Capital spending also increased, to $648 million from $258 million. Free cash flow deducts that spending from continuing operating cash, explaining why it fell faster than operating cash alone.
Profit and the next sales ramp remain strong
AMD's GAAP operating income more than doubled to $2.832 billion from $1.270 billion. Data-center revenue reached $8.546 billion, up 97%, including both Instinct AI accelerators and EPYC server processors.
The latest $13.377 billion of total revenue was $77 million above August's forecast range. Its 56% adjusted gross margin matched the earlier forecast. The new fourth-quarter outlook calls for approximately 55% adjusted gross margin.
Adjusted results remove items including stock compensation, acquisition-related amortization and selected other costs. Net-income adjustments also remove a noncash customer-warrant valuation charge.
Funding grew alongside the business
Year-to-date continuing operating cash rose to $6.523 billion from $4.189 billion. Cash and short-term investments totaled $15.776 billion, exceeding $7.079 billion of debt carrying amounts.
AMD completed a $4.75 billion note offering in August and repaid $875 million of debt during the quarter. Those transactions were already announced; the latest statements show the inventory, investment and cash balances alongside them.
Our AMD company profile tracks those balances, customer-warrant accounting and the pending acquisitions behind its expanding business.