Advanced Micro Devices (AMD) delivered a strong quarterly performance and forecast revenue above Wall Street expectations, driven by surging demand for its chips as technology companies expand data-centre capacity to support artificial intelligence (AI) workloads, Reuters reported.However, the company’s shares dropped nearly 9% in extended trading as investors appeared to expect an even stronger outlook following a sharp rally in the stock this year.AMD’s results highlighted the growing importance of AI infrastructure spending, but the market reaction reflected rising expectations around the pace at which AI investments translate into revenue growth and profitability.The Santa Clara, California-based chipmaker expects third-quarter revenue of around $13 billion, plus or minus $300 million, compared with analysts’ estimate of $12.52 billion, based on LSEG data. AMD expects adjusted gross margin of about 56%, broadly in line with market expectations.AI infrastructure push boosts AMD growthAMD has emerged as the closest competitor to Nvidia in the AI accelerator market as cloud companies, enterprises and governments increase investments in computing infrastructure required to power AI applications.The company’s data-centre business has become the key growth driver, with second-quarter data-centre revenue more than doubling year-on-year to $6.72 billion, beating analyst expectations of $6.48 billion. Revenue from the segment also rose 16.3% sequentially from $5.78 billion in the first quarter.AMD’s overall second-quarter revenue jumped 50% to $11.54 billion, surpassing Wall Street expectations of $11.28 billion. Adjusted earnings came in at $1.66 per share, ahead of the $1.62 per share estimate.Reuters reported that AMD’s latest forecast indicates its strategy to challenge Nvidia’s dominance in AI chips is gaining momentum, supported by stronger sales of data-centre processors and accelerating adoption of its AI products.AMD expands beyond chips into AI systemsAMD is increasingly moving beyond selling individual processors and graphics chips by developing complete AI systems that combine computing, networking and other hardware components.The company is building a broader AI hardware ecosystem to compete with Nvidia’s rack-scale solutions, which integrate multiple components into large-scale AI computing platforms.CEO Lisa Su said AMD expects its data-centre sales to more than double by 2027. She also projected overall revenue growth to exceed the company’s previous target of more than 35%, while annual earnings could surpass the $20-per-share goal set during its 2025 analyst event.AMD’s upcoming AI platform is expected to combine its MI500 graphics processors, Verano central processing units (CPUs) and Pensando networking technology, creating systems designed to support advanced AI workloads.Gains in server CPU marketApart from AI accelerators, AMD is also benefiting from rising demand for central processing units used alongside graphics processors in data centres. These CPUs handle critical computing tasks, including inference operations that process user queries on AI applications.The growth has helped AMD gain market share from rival Intel, which has increased investments to capitalise on the AI-driven demand boom.AMD recently said its second-generation Helios AI servers, powered by the MI455X AI accelerator and TSMC-made Venice processors, had entered full production and would begin shipping in the coming months.Major AI partnerships strengthen outlookAMD has expanded its customer base through large-scale AI infrastructure agreements. Reuters reported that the company signed a deal with Anthropic in July to supply AI servers powered by up to 2 gigawatts of MI450 chips from early 2027. The agreement also includes AMD investing up to $5 billion in the AI company, subject to deployment milestones.The chipmaker also secured up to 2.5 gigawatts of data-centre capacity through an agreement with Core Scientific, receiving stock purchase warrants as part of the deal.Investor expectations remain highDespite strong earnings and an upbeat forecast, AMD’s stock reaction showed that investors are demanding more evidence that AI spending will generate sustained returns.The company’s shares have more than doubled this year on optimism around AI growth, raising expectations for continued acceleration in revenue and earnings.With AI infrastructure investment entering a critical phase, AMD’s ability to narrow the gap with Nvidia will depend on execution, supply availability and whether demand for AI computing continues to expand at the current pace.