Paid in shares, measured at grant: reading AMD's third quarter from the filings

1. What was reported, and what the documents say

The third quarter results were announced on Form 8-K on 3 November 2026 and the Form 10-Q for the quarterly period ended 26 September 2026 was filed on 4 November 2026. Net revenue was $13,377 million against $9,246 million, a rise of 44.7 per cent, computed. Operating income was $2,832 million against $1,270 million, a rise of 123 per cent, computed. Diluted earnings per share were $1.46 against $0.75.

Data Center net revenue was $8,546 million against $4,341 million, a rise of 96.9 per cent, computed, and $21,039 million for the nine months against $11,255 million, 86.9 per cent, computed. Data Center is 59.8 per cent of nine-month net revenue, computed, and its $6,584 million of operating income exceeds the $6,298 million the company earned in total, because the unallocated All other category carries $3,193 million of costs the chief operating decision maker does not consider in assessing segment performance.

Reuters reported on 4 November 2026 that the arrangement with the second customer involves up to $60 billion of chip purchases over five years and warrants potentially allowing that customer to acquire as much as 10 per cent of the company, and described the structure as highlighting the circular nature of the current investment cycle. Those figures are not in the Form 10-Q. The filing states the number of warrant shares, the exercise price, the measurement inputs and the accounting, and it does not state the size of the customers' purchase obligations anywhere. That asymmetry is the subject of section 5.

What follows uses the Form 10-Q and the Form 8-K filed 3 November 2026, except where a press report is named and dated as a press report.

2. Two customers, 320 million shares, and two measurement dates

The filing's risk factors name the holders: the warrants we have issued to OpenAI OpCo., LLC and Meta Platforms, Inc. that are exercisable for up to a combined 320 million shares of our common stock, subject to certain vesting and exercise conditions. Note 14 states that the warrants were issued to two customers in October 2025 and February 2026, each entitling the holder the right to purchase up to 160 million shares of the Company's common stock at an exercise price of $0.01 per share. The filing does not say which warrant belongs to which holder, so no such attribution is made here.

The vesting conditions are worth reading in full, because they are unusual. The warrants vest in tranches as the customers reach specified purchase milestones and the Company's stock price meets specified targets, including, for certain tranches, stock price performance relative to a market index. Each tranche then becomes exercisable only after specified technical and commercial conditions are met by the customers. Each warrant expires five years from issuance and is not settleable in cash.

So there are three gates, and they are of different kinds. One is commercial and sits with the customer: a purchase milestone. One is market-based and sits with the share price, in certain tranches measured against an index rather than in absolute terms. One is technical and commercial and again sits with the customer. The company controls none of the three.

Two measurement dates matter. The weighted-average grant-date fair value of the warrants outstanding was $14.25 per share, estimated with a Monte Carlo simulation using expected volatility of 49 % - 56 %, a risk-free rate of 3.56 % - 3.69 %, no expected dividend and a five-year expected term, with the correlation of the company's stock price returns against a market index incorporated for certain tranches. At 26 September 2026 the weighted-average fair value was $178.58 per share, which the filing attributes to an updated probability of the conditions being met and primarily on its closing stock price as most market conditions had been met.

Those two numbers are 12.5 times apart, computed. Multiplied by the 320 million shares, the grant-date measure is $4,560 million and the quarter-end measure is $57,146 million, both computed. The filing presents neither product. It is worth being precise about what the larger number is and is not: it is the fair value of the instrument at a date, not an amount payable, not a cash cost and not a transfer that has occurred. It becomes real for existing holders as shares, if and when the conditions are satisfied.

3. Where the cost lands, and why the margin never sees it

Note 2 sets out the policy in two sentences that do most of the work in this file. First: Fair value on the grant date of the warrant shares probable of vesting is recorded as a reduction to revenue proportionally as qualifying customer revenues are recorded, initially with a corresponding liability recorded within Other long-term liabilities. Second: The warrant liability is remeasured to fair value each reporting period, with changes in fair value after grant date recorded within Other income (expense), net, until each tranche becomes exercisable, at which point the related liability is reclassified to Additional paid-in capital at its then-current fair value and is no longer subject to remeasurement.

Read those together. The amount that reduces revenue is measured on the grant date and never remeasured. Every movement after the grant date is reported below the operating line. The instrument is the same throughout.

Note 3 shows Change in fair value of warrant liability of $(1,097) million for both the three and the nine months. The statement of cash flows adds back Non-cash impact of warrants issued to customers, net of $1,179 million for the nine months. The difference, $82 million, is the amount recorded as a reduction of revenue to date, computed from those two filed inputs. The warrant liability at 26 September 2026 is $1.2 billion, which is the cumulative total of the two.

A second and independent route reaches the same place. 320 million shares at $14.25 is $4,560 million, and the filing states that The unrecognized grant-date fair value of the unvested warrants was $4.5 billion, representing the remaining value that would be recorded as a reduction of revenue proportionally as qualifying customer revenue is recognized. The difference is $60 million, and because the filed figure is stated to one decimal place the implied recognised amount is between $10 million and $110 million. $82 million sits inside that band. Two paths through the filing agree, and neither is the company's own presentation, because the company does not present it.

The second amount is 13.4 times the first, computed. Gross profit of $7,210 million and operating income of $2,832 million are each struck after the $82 million and before the $1,097 million, and the $1,097 million is 38.7 per cent of operating income and $0.66 per diluted share, both computed.

None of this is a criticism of the accounting. ASC 606 treats consideration payable to a customer as a reduction of the transaction price, and ASC 718 governs the measurement and classification of a share-based award whose subsequent remeasurement, before equity classification, belongs in earnings. The filing cites both. The point is narrower and it is a reading point: an analyst who models operating margin, or who compares this quarter's 21.2 per cent operating margin against last year's 13.7 per cent, both computed, is comparing numbers from which the large part of the warrant cost has been excluded by design.

The forward position is the part worth carrying away. $4,478 million of grant-date value, computed, has not reached the income statement in any line. It will reach revenue, at $14.25 per share, as qualifying customer revenue is recorded. The more the customers buy, the more of it lands, and it lands against the revenue those purchases generate.

4. Three hundred and twenty million shares in neither earnings per share figure

Note 13 is explicit: Shares issuable upon the exercise of warrants issued to customers are considered contingently issuable and are excluded from the computation of basic and diluted earnings per share until all the conditions for the warrants to become vested and exercisable have been satisfied. Note 14 confirms the position at the balance sheet date: no warrant shares had vested or become exercisable, or been exercised, forfeited or expired.

The diluted share count for the quarter is 1,661 million, being 1,636 million basic plus 25 million Potentially dilutive shares from employee equity plans. The 320 million warrant shares are not in it. Against the 1,640,087,251 shares outstanding on the cover page at 28 October 2026, 320 million is 19.5 per cent, computed.

This is the correct treatment: a contingently issuable share enters the calculation when the contingency is resolved, and the market conditions, purchase milestones and technical conditions have not all been met. It is also the easiest thing in the filing to miss, because it appears as a sentence at the end of the reconciliation rather than as a footnote to the earnings per share line.

There is a sequencing point underneath it that is easy to get backwards. The filing says most market conditions had been met by 26 September 2026, which is what lifted the fair value to $178.58. Market conditions being met is not the same as a tranche becoming exercisable, because exercisability also requires the customers' purchase milestones and the technical and commercial conditions. So the measurement has moved a long way while the share count has not moved at all. Note 2 anticipates the order running the other way too: If the conditions of exercisability are met prior to the customers meeting the tranche's purchase milestones, the unrecognized change in fair value is recorded within Other income (expense) with a corresponding amount recorded to Additional paid in capital as the customer purchases occur.

5. The obligations the filing quantifies, and the one it does not

Note 11 states unconditional purchase commitments of $48,761 million, covering wafers, substrates, memory, other components, and assembly, test, mark and packaging services for manufacturing together with multi-year arrangements with cloud service providers (CSPs) for compute capacity to be used primarily for internal research and development activities. These are unconditional obligations that are noncancellable or for which cancellation would result in significant penalties. By year: $11,218 million for the remainder of fiscal 2026, $22,206 million in fiscal 2027, then $4,959 million, $3,786 million, $4,231 million and $2,361 million. The first two years are $33,424 million, computed, which is 68.5 per cent of the total, computed.

Now the other side of the same relationship. Note 3 states that the aggregate transaction price allocated to remaining performance obligations under contracts with an original expected duration of more than one year was $ 246 million, of which $ 180 million is expected to be recognized in the next 12 months, and that the measure does not include amounts which have an original expected duration of one year or less.

That exclusion matters and it must be stated plainly: most semiconductor sales are short-duration arrangements, so $246 million is not a measure of the demand book and nothing here treats it as one. The point is different. Across the whole filing there is no quantified figure for what the warrant customers have committed to buy. The warrants vest against specified purchase milestones and the size of those milestones is not disclosed. The obligations running out of the company are stated to the dollar across six fiscal years. The obligations running into it are described in words.

Neither disclosure is deficient: ASC 606 sets the remaining performance obligation requirement and its one-year practical expedient, and no standard requires a company to publish a customer's purchase commitments. But the result is that the number a reader would most want, in order to judge whether $33,424 million of near-term purchase commitments is matched by anything, is the one number not there.

The inventory position is where that asymmetry shows on the balance sheet. Inventories rose from $7,920 million to $11,463 million, 44.7 per cent, computed, against the 44.3 per cent rise in nine-month net revenue, computed. Within it raw materials rose from $909 million to $2,212 million and work in process from $4,768 million to $7,416 million, while finished goods fell from $2,243 million to $1,835 million. The build is upstream, not in the warehouse.

6. Leases that have not commenced, and the ones that have

Note 11 discloses, under Other Commitments, data centre leases that have not commenced with aggregate future payments of $ 13.3 billion and terms of 10 to 15 years, expected to commence from the second quarter of fiscal 2027, and expected to be assigned or subleased to commercial partners. Separately, ordinary leases not yet commenced add $0.2 billion.

The comparison has to be made on one basis, and this is the exact place where a reading of this kind goes wrong. The $13.3 billion is undiscounted future payments. The balance sheet carries operating lease liabilities of $2,132 million, a present value, after $535 million of imputed interest is removed from $2,667 million of undiscounted minimum payments. Dividing $13.3 billion by $2,132 million gives 6.2 times and is wrong, because it divides an undiscounted number by a discounted one. Undiscounted against undiscounted, $13.3 billion against $2,667 million, is 5.0 times, computed.

The weighted-average remaining lease term extended from 6.95 years to 9.08 years and the discount rate from 4.74 per cent to 5.00 per cent. Right-of-use assets rose from $790 million to $2.2 billion, and right-of-use assets acquired by assuming related liabilities, a non-cash item, were $1,498 million for the nine months against $275 million.

The subleasing is the structural feature. The company subleases certain data center facilities to commercial partners under operating leases that expire through fiscal year 2036 and remains as the primary obligor under the original leases, with future sublease receipts of $896 million. It therefore sits between a landlord and a partner, holding the primary obligation to the landlord and a receivable from the partner. The $896 million and the $13.3 billion cover different populations of leases and are not a matched pair.

7. Credit written on the counterparties, and capacity bought to be resold

Two arrangements move risk onto the company without putting a material liability on its balance sheet, and both are disclosed properly and quietly.

The first is guarantees. Note 11 states that the company provides credit support to certain commercial partners in the form of guarantees of their lease and debt obligations in the event of their default, with maximum potential future payments of $8.5 billion and remaining terms of up to 15 years. Note 8 splits it into $7.7 billion of data centre lease guarantees over terms of up to 15 years and $750 million of commercial partner debt guarantees over terms of up to six months. Those sum to $8,450 million, computed, which is the $8.5 billion stated, so here the filing does support the addition.

The classification is what a reader should notice. The guarantees are accounted for as credit derivatives and recorded at fair value on a recurring basis within Other current liabilities and Other long-term liabilities, with changes in fair value recognized in Other income (expense), net, on Level 3 inputs including lease rates, obligor credit ratings, credit spreads and default rates. No partner was in default, no amounts had been paid, and the fair value of both sets of guarantees and the related gains and losses were not material to the financial statements. So credit protection of up to $8.5 billion, with maturities out to fifteen years, is carried at an immaterial amount, which is what a fair value measurement on non-defaulting obligors produces. Movements in it will run through the same line as the warrant remeasurement.

The second is the cloud compute arrangement, and its sentence repays slow reading. The company commits to purchase GPU compute capacity from CSPs, either to the extent the capacity is not purchased by third-party customers, or for capacity reserved by the Company that it may sell or assign to third parties, and The amounts represent the Company's maximum commitments, which are reduced as third-party customers pay for such capacity. The commitment is $6,175 million, of which $1,419 million falls in fiscal 2027. It is a residual obligation: the company pays for the capacity that third parties do not.

Note 12 places these commitments, the subleases and certain investments inside variable interest entities that are not consolidated, because the company does not have the power to direct the activities that most significantly impact the economic performance of these entities. Alongside them sit commitments to make equity investments of up to $5.1 billion through fiscal 2028, largely in privately held companies, and $1.0 billion invested in an equity offering of a public company in October 2026, after the balance sheet date. The filing does not name that company. CNBC reported on 3 November 2026 that the company agreed to invest $1 billion in Meta's equity offering. The filing supports the amount, the month and the fact that the issuer is public, and no more.

Figure 4 sets these disclosures beside each other and does not add them up, for the reason Note 12 gives: they are not independent populations, and summing them would double count by an amount the filing does not state.

8. The same share price, in the tax line

Note 15 records an income tax benefit from continuing operations of $555 million for the quarter and $65 million for the nine months, representing an effective tax rate of ( 29.6 )% and ( 1.1 )%. The benefit reflects foreign-derived deduction eligible income and research and development credits, and in addition included a discrete tax benefit related to stock-based compensation of $772 million and $918 million, respectively. Long-term liabilities for unrecognised tax benefits, including interest and penalties, were $905 million against $806 million.

A discrete tax benefit on share-based compensation of that size arises when awards vest or are exercised at a share price well above the fair value at which they were expensed. It is the same share price appreciation that produced the $1,097 million warrant charge. In one three-month period the share price cost $1,097 million below the operating line and saved $772 million in the tax line. The two are not a matched pair and nothing here nets them, because they arise from different instruments held by different people under different standards. But a reader working out how much of this quarter's net income is a function of the company's own share price should be looking at both lines, and the coverage looked at neither.

One denominator note belongs here. The filed rate of (29.6) per cent against a benefit of $555 million implies a denominator of about $1,875 million, while the face of the statement shows $1,868 million as Income from continuing operations before income taxes and equity income, on which the rate computes to (29.7) per cent. The difference is a tenth of a percentage point and changes nothing. It is recorded because a ratio whose denominator is not the line it appears to sit beside is the thing worth noticing before it matters.

The nine-month position is the one to keep. Income before income taxes and equity income of $6,023 million, a tax benefit of $65 million, and income from continuing operations of $6,105 million. A profitable nine months at a negative effective tax rate.

9. Where the growth is, and where the goodwill is

Note 6 places $21,072 million of the $25,470 million of goodwill in the Embedded segment, which is 82.7 per cent of the total, computed. Data Center carries $4,034 million and Client and Gaming $364 million. On a nine-month basis Embedded produced net revenue of $2,959 million, 8.4 per cent of the total, computed, and operating income of $1,177 million. Data Center produced $21,039 million of net revenue and $6,584 million of operating income.

So 82.7 per cent of the goodwill sits against 8.4 per cent of the revenue, and the segment carrying the growth carries 15.8 per cent of the goodwill, computed. Goodwill is a balance and segment revenue a nine-month flow, so each percentage is computed within one basis and the two are not divided into one another.

Nothing in the filing indicates an impairment issue, there is no triggering-event disclosure, and Embedded's nine-month operating margin of 39.8 per cent, computed, is the highest of the three segments. The observation is about where an impairment test would have to be run if conditions changed, and about the fact that the reporting unit holding four fifths of the goodwill is not the one carrying the growth.

Acquisition-related intangibles are $15,101 million net, on a gross $26,862 million, with $2,042 million of amortisation scheduled for fiscal 2027 and $7,449 million falling in 2031 and thereafter. The $534 million charged in the quarter sits inside the unallocated All other category and therefore outside every segment's operating income.

Two acquisitions are pending and both are largely paid in shares: Taalas Inc. at approximately $2.9 billion in cash and stock, including up to approximately $1.4 billion of contingent consideration, and World Labs Technologies, Inc. at approximately $8.2 billion in an all-stock transaction, both expected to close by the end of 2026. Equity is doing a great deal of work in this filing.

The related party disclosure deserves a line. Equity-method investees, which the filing says are considered related parties, supplied assembly, test, mark and packaging services of $581 million in the quarter and $1.8 billion for the nine months, with $606 million payable at the balance sheet date, and the company holds a $100 million term loan receivable from one of them. The company part-owns a supplier, buys from it, and lends to it.

10. The cash, the payables and the borrowing

Net cash provided by operating activities of continuing operations was $6,523 million against $4,189 million, on net income of $6,108 million. Non-cash adjustments add $4,049 million, computed, of which $1,513 million is stock-based compensation, $1,629 million amortisation of acquisition-related intangibles and $1,179 million the warrant amount. Working capital consumed $3,631 million, computed: receivables $(2,894) million, inventories $(3,543) million and prepaid and other assets $(2,061) million, against accounts payable of $4,483 million and accrued and other liabilities of $384 million. Net income less $3 million of discontinued operations, plus $4,049 million, less $3,631 million, is $6,523 million, the filed figure.

Accounts payable rose from $2,929 million to $7,756 million, 164.8 per cent, computed, against nine-month revenue growth of 44.3 per cent. Supplier credit is funding much of the inventory and receivable build, which is normal and often sensible, and is the first working capital line to reverse if supply terms tighten. Alongside it, $4.75 billion of senior notes was issued on 17 August 2026 at 4.600 to 5.500 per cent, taking total principal from $3,250 million to $7,125 million, and the revolving facility and commercial paper programme were raised to $5.0 billion and $5.5 billion in May 2026, neither drawn at the balance sheet date.

The buyback is the last point. Against total repurchase authority of $14 billion, with $9.2 billion still available, the company repurchased 1.1 million shares for $221 million in nine months, while spending $1,836 million of cash on Stock repurchases for tax withholding on employee equity plans, 8.3 times as much, computed. Those are different transactions with different purposes, and the comparison is of cash out of the door under each heading, which is one basis.

11. What this looks like between $10 million and $500 million of revenue

Every mechanism in this filing is in ordinary use at a fraction of the size, and the number of zeros is the only thing that changes.

Paying a customer in equity. A warrant or option granted to an anchor customer, a distributor or a channel partner is consideration payable to a customer. It reduces revenue at grant-date fair value, and if it is liability-classified the later movement in value goes somewhere else in the income statement. A company that has promised a customer equity on volume milestones should know, before the first invoice, which line carries which part, and should be able to state the amount that has not yet reached the income statement. Here that amount is $4,478 million, computed. In a smaller company it is the figure nobody can produce when the auditor asks in year two. This is a different mechanism from paying employees in equity, which runs through ASC 718 and lands in operating expenses, and which an earlier file in this series took apart. Equity paid to a customer reduces revenue instead.

Conditions you do not control, and shares that do not yet count. Three vesting gates, one of them your own share price measured against an index, is a measurement problem every reporting period, requiring a Monte Carlo model and a documented probability assessment that most finance functions below $500 million of revenue have not budgeted for. And contingently issuable shares stay out of basic and diluted earnings per share until every condition is satisfied, which is correct, and which means the dilution is invisible in the per-share numbers for as long as the conditions run. A board looking at earnings per share should be shown the fully-conditional share count beside it.

Guaranteeing a counterparty, and buying capacity to resell. A guarantee over a partner's lease or borrowing moves that partner's risk onto a company that may record almost nothing for it, because a fair value measurement on a non-defaulting obligor is small; the exposure lives in a maximum potential payment sentence in a note. A commitment to buy to the extent a third party does not is a residual obligation that looks costless while demand holds. For both, the internal disclosure to insist on is one page: the maximum, the term, the trigger, and how much is already covered by third-party payments.

Commitments on one side only. If a company's own purchase commitments are contracted for six years and its customers' are not contracted at all, that is a balance sheet fact before it is a commercial one. It can be entirely rational, and it should be quantified and put in front of the board as one number. Accounts payable growing at nearly four times the rate of revenue belongs on the same page: it is a financing decision whether or not anyone called it one, and it is the line that reverses first.