ADVANCED MICRO DEVICES INC

NOTE 1 –The Company

Advanced Micro Devices, Inc. is a global semiconductor company. References herein to AMD or the Company mean Advanced Micro Devices, Inc. and its consolidated subsidiaries. AMD’s products include Artificial Intelligence (AI) accelerators, microprocessors (CPUs) and graphics processing units (GPUs), as standalone devices or as incorporated into accelerated processing units (APUs), data processing units (DPUs), AI Network Interface Cards (AI NICs), Field Programmable Gate Arrays (FPGAs), Adaptive System-on-Chip (SoC) products, chipsets, embedded processors, semi-custom SoC products, microprocessor and SoC development services and technology and System on Modules (SOMs). From time to time, the Company may also sell or license portions of its intellectual property (IP) portfolio.

NOTE 2 –Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of AMD have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The results of operations for the three and nine months ended September 26, 2026 shown in this report are not necessarily indicative of results to be expected for the full year ending December 26, 2026 or any other future period. In the opinion of the Company’s management, the information contained herein reflects all adjustments necessary for a fair presentation of the Company’s results of operations, financial position, cash flows and stockholders’ equity. All such adjustments are of a normal, recurring nature. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2025.

The Company uses a 52- or 53-week fiscal year ending on the last Saturday in December. The three and nine months ended September 26, 2026 and September 27, 2025 each consisted of 13 and 39 weeks, respectively.

Use of Estimates. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results are likely to differ from those estimates, and such differences may be material to the financial statements. Areas where management uses subjective judgment include, but are not limited to: revenue allowances, inventory valuation, valuation of goodwill and long-lived and intangible assets, business combination accounting, valuation of warrants issued to customers and income taxes.

Significant Accounting Policies. With the exception of the accounting for warrants issued to customers, there have been no material changes to the Company’s significant accounting policies in Note 2 - Basis of Presentation and Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2025.

Warrants Issued to Customers

Warrants to purchase the Company's common stock issued to customers represent consideration payable to a customer under ASC 606, Revenue from Contracts with Customers. 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 on the Condensed Consolidated Balance Sheets. The warrants are measured and classified under ASC 718, Compensation – Stock Compensation. 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. 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. The Company estimates the fair value using a Monte Carlo simulation model or, after the market conditions are met, the Company’s closing stock price, together with its estimate of the probability of the customers meeting the specific conditions required for exercisability. Once warrant shares become vested and exercisable, they are included in the computation of both basic and diluted earnings per share.

Prior Period Reclassification. Certain amounts in prior period were reclassified to conform to current period presentation.

Recently Issued Accounting Standard Updates Not Yet Adopted

In December 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) Government Grants (ASU 2025-10) Topic 832 - Accounting for Government Grants Received by Business Entities, which provides guidance, on the recognition, measurement and presentation of government grants. This ASU is effective for the Company for its fiscal year 2029. The Company is currently evaluating the impact of adoption of this guidance on its financial statements.

In May 2025, the FASB issued ASU 2025-04 Topic 718 - Stock Compensation and Topic 606 - Clarifications to Share-Based Consideration Payable to a Customer to clarify the guidance on accounting for share-based payment grants that an entity grants as consideration payable to its customers. The ASU is effective for the Company for its fiscal year 2027. The Company is currently evaluating the impact of adoption of this guidance on its financial statements.

NOTE 3 –Supplemental Financial Statement Information

Construction in progress includes costs primarily related to data center network infrastructure.

Revenue

Revenue allocated to remaining performance obligations that are unsatisfied or partially unsatisfied include amounts received from customers and amounts that will be invoiced and recognized as revenue in future periods for development and engineering services, IP licensing, and product revenue. As of September 26, 2026, 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. The revenue allocated to remaining performance obligations does not include amounts which have an original expected duration of one year or less.

Revenue recognized over time associated with custom products and development services accounted for approximately 3% and 4% of the Company’s revenue for the three and nine months ended September 26, 2026, and 9% and 10% of the Company’s revenue for the three and nine months ended September 27, 2025, respectively.

See Note 14 – Common Stock and Stock-based Compensation for information on change in fair value of warrant liability.

NOTE 4 –Segment Reporting

Management, including the Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, reviews and assesses operating performance using segment net revenue, cost of sales and operating expenses, and operating income (loss). These performance measures include the allocation of expenses to the reportable segments based on management’s judgment. The CODM is regularly provided segment operating income to assess relative segment performance.

The Company’sthree reportable segments are:

•the Data Center segment, which primarily includes Artificial Intelligence (AI) accelerators, microprocessors (CPUs) for servers, graphics processing units (GPUs), accelerated processing units (APUs), data processing units (DPUs), AI Network Interface Cards (AI NICs), Field Programmable Gate Arrays (FPGAs) and adaptive System-on-Chip (SoC) products for data centers;

•the Client and Gaming segment, which primarily includes CPUs, APUs, chipsets for desktops and notebooks, discrete GPUs, and semi-custom SoC products and development services; and

•the Embedded segment, which primarily includes embedded CPUs, APUs, FPGAs, System on Modules (SOMs), and adaptive SoC products.

From time to time, the Company may also sell or license portions of its IP portfolio.

In addition to these reportable segments, the Company has an All Other category, which is not a reportable segment. This category primarily includes certain expenses and credits that are not allocated to any of the reportable segments because the CODM does not consider these expenses and credits in evaluating the performance of the reportable segments. This category primarily includes amortization of acquisition-related intangibles, employee stock-based compensation expense and acquisition-related and other costs. Acquisition-related and other costs primarily include certain compensation charges and transaction costs.

The following table provides a summary of net revenue, cost of sales and operating expenses, and operating income (loss) by segment. Segment cost of sales and operating expenses primarily include materials, external manufacturing, labor and marketing and advertising costs, and exclude expenses and credits that are recorded within the All Other category. Each of the Client and Gaming businesses do not qualify as a separate reportable operating segment, however, the Company continues to separately disclose revenue for each business.

NOTE 5 –Acquisitions and Divestitures

Pending Acquisitions

In August 2026, the Company entered into a definitive agreement to acquire Taalas Inc., a developer of specialized inference silicon, in a cash and stock transaction valued at approximately $2.9 billion, including contingent consideration of up to approximately $1.4 billion. In September 2026, the Company entered into a definitive agreement to acquire World Labs Technologies, Inc., a model research lab focused on spatial intelligence, in an all-stock transaction valued at approximately $8.2 billion. The acquisitions are expected to close by the end of 2026, subject to regulatory approvals and customary closing conditions.

ZT Systems Acquisition and ZT Manufacturing Business Divestiture

In March 2025, the Company completed the acquisition of ZT Group Int’l, Inc. (ZT Systems), a provider of data center and general-purpose compute infrastructure for hyperscale computing companies, for total purchase consideration of $4.4 billion, consisting of $3.2 billion in cash, $860 million in shares of AMD common stock and $361 million of contingent consideration. The contingent consideration was settled in October 2025 upon full satisfaction of the applicable contingencies. The acquisition supports the Company’s ability to deliver end-to-end AI solutions and accelerate the design and deployment of AMD-powered super intelligence (SI) infrastructure at scale optimized for the cloud.

The Company retained select intellectual property and employees associated with the design operations, the results of which are included in the Data Center segment within continuing operations and are not material. Goodwill, assigned to the Data Center reporting unit and primarily attributed to assembled workforce, is not deductible for income tax purposes. The data center infrastructure manufacturing business (ZT Manufacturing Business) was classified as held for sale upon acquisition and was divested in October 2025, and its results are presented as discontinued operations.

During the measurement period, the Company recorded adjustments to certain assets and liabilities acquired and classified as held for sale, with a corresponding adjustment to goodwill. The adjustments did not have a material impact on the Company’s consolidated results of operations. The purchase price allocation, including measurement period adjustments, is presented below.

In October 2025, the Company completed the sale of the ZT Manufacturing Business to Sanmina Corporation (Sanmina) for $2.4 billion in cash, subject to certain purchase price adjustments and 1,151,052 shares of Sanmina common stock. Upon close of the sale, the Company received cash of $1.4 billion, net of cash divested and purchase price adjustments, and shares of Sanmina common stock valued at $154 million. During the nine months ended September 26, 2026, the Company made a payment of $243 million related to customary post-closing net working capital adjustments, including adjustments resulting from measurement period adjustments related to the acquisition of ZT Systems.

The Company is also eligible to receive additional cash consideration of up to $450 million to the extent certain conditions are met following the close of the sale through 2028 (Earn-out). The Company applied the loss recovery approach, under which the difference between the fair value of the consideration received, excluding the Earn-out, and the carrying amount of the net assets disposed, is recognized as an earn-out receivable, to the extent it is probable of being received. As of September 26, 2026, the earn-out receivable of $348 million was recorded within Other non-current assets in the Company’s Consolidated Balance Sheets, and is subject to impairment assessment at the end of each reporting period prior to receipt of payment. The Company also entered into a Manufacturing Services Agreement with Sanmina with an initial term of five years.

Since the ZT Manufacturing Business was classified as held for sale upon acquisition and sold in October 2025, pro forma combined results were deemed immaterial and omitted.

Other Acquisitions

For the current and prior periods presented, the Company also completed acquisitions that were immaterial both individually and in aggregate.

NOTE 6 –Goodwill and Acquisition-related Intangibles, net

Goodwill

The following table summarizes Goodwill:

Acquisition-related Intangibles, net

The following table summarizes Acquisition-related Intangible Assets:

Acquisition-related intangible amortization expense was $534 million and $1.6 billion for the three and nine months ended September 26, 2026, respectively. Acquisition-related intangible amortization expense was $562 million and $1.7 billion for the three and nine months ended September 27, 2025, respectively.

Based on the carrying value of acquisition-related intangibles recorded as of September 26, 2026, and assuming no subsequent impairment of the underlying assets, the estimated future annual amortization expense for acquisition-related intangibles is as follows:

NOTE 7 –Equity Method Investments

The Company has investments accounted for under the equity method, which are considered related parties. The carrying value of the Company’s investments accounted for under the equity method was $306 million and $176 million as of September 26, 2026 and December 27, 2025, respectively, and is recorded within Other non-current assets on the Company’s Consolidated Balance Sheets.

The Company’s transactions with these related parties consist primarily of assembly, test, mark and packaging (ATMP) services provided in the ordinary course of business. Purchases from related parties during the three and nine months ended September 26, 2026 were $581 million and $1.8 billion, respectively, and during the three and nine months ended September 27, 2025 were $483 million and $1.5 billion, respectively. Amounts payable to related parties were $606 million and $408 million as of September 26, 2026 and December 27, 2025, respectively, and are recorded within Accounts payable on the Company’s Consolidated Balance Sheets. The Company also has a $100 million term loan receivable outstanding from one of the investees as of September 26, 2026 and December 27, 2025, bearing interest at a variable rate plus a margin payable quarterly, recorded with related interest receivable within Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets.

Equity income from these investees, recorded in Equity income in investee on the Company’s Consolidated Statements of Operations, was not material for the three and nine months ended September 26, 2026 and September 27, 2025.

NOTE 8 –Financial Instruments

Financial Instruments Recorded at Fair Value on a Recurring Basis

The following is a summary of cash equivalents and short-term investments:

As of September 26, 2026 and December 27, 2025, the Company did not have material available-for-sale debt securities which had been in a continuous unrealized loss position of more than twelve months.

The contractual maturities of available-for-sale debt securities are as follows:

Long-term investments measured at fair value on a recurring basis consist primarily of marketable equity securities of publicly traded companies, including warrants, and other instruments. As of September 26, 2026, net unrealized gains from marketable equity securities were $485 million and were not material as of December 27, 2025. As of September 26, 2026 and December 27, 2025, these investments included $1.1 billion and $178 million, respectively, of aggregate fair value of marketable equity securities which are subject to time-based contractual sale restrictions that expire through October 2028.

Deferred compensation plan investments are primarily mutual fund investments held in a Rabbi trust established to maintain the Company’s executive deferred compensation plan.

Financial Instruments Not Recorded at Fair Value

The carrying amounts and estimated fair values of the Company’s current and long-term debt are as follows:

The estimated fair value of the Company’s long-term debt is based on Level 2 inputs of quoted prices for the Company’s debt and comparable instruments in inactive markets.

The fair value of the Company’s accounts receivable, accounts payable and other short-term obligations approximate their carrying value based on existing terms.

Financial Instruments Measured at Fair Value on a Non-Recurring Basis

Non-marketable equity securities and other instruments, which primarily consist of investments in privately held SI and emerging technology companies, are accounted for under the measurement alternative and are measured at fair value on a non-recurring basis when there is an observable price change or impairment. These fair value measurements are classified within Level 3 of the fair value hierarchy and are determined using valuation models that incorporate unobservable inputs. Certain of the Company’s investments in privately held cloud and SI infrastructure companies are variable interests in variable interest entities (VIEs). See Note 12 – Variable Interest Entities.

As of September 26, 2026 and December 27, 2025, the carrying value of these investments was $1.9 billion and $1.1 billion, respectively, which included cumulative gross unrealized gains of $145 million and $291 million, respectively. Gross unrealized gains were $155 million and $107 million during the nine months ended September 26, 2026 and September 27, 2025, respectively, and were not material during the three-month periods. Gross unrealized losses and impairments for all periods presented, including on a cumulative basis, were not material.

Hedging Transactions and Derivative Financial Instruments

Foreign Currency Forward Contracts Designated as Accounting Hedges

The Company enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate risk related to future forecasted transactions denominated in currencies other than the U.S. Dollar. These contracts generally mature within 24 months and are designated as accounting hedges. As of September 26, 2026 and December 27, 2025, the notional value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges was $3.2 billion and $2.3 billion, respectively. The fair value of these contracts, on a gross basis, was not material as of September 26, 2026 and December 27, 2025.

Foreign Currency Forward Contracts Not Designated as Accounting Hedges

The Company also enters into foreign currency forward contracts to reduce the short-term effects of foreign currency fluctuations on certain receivables or payables denominated in currencies other than the U.S. Dollar. These forward contracts generally mature within 3 months and are not designated as accounting hedges. As of September 26, 2026 and December 27, 2025, the notional value of these outstanding contracts was $3.0 billion and $1.1 billion, respectively. The fair value of these contracts, on a gross basis, was not material as of September 26, 2026 and December 27, 2025.

Credit Derivatives

The Company has entered into guarantees to provide credit support for payment obligations of certain commercial partners, in the event of their default, to support their development of data center infrastructure. These guarantees, which include data center lease guarantees and commercial partner debt 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. The fair value of these credit derivatives is classified within Level 3 of the fair value hierarchy and is determined using valuation models that incorporate unobservable inputs, including, where applicable, lease rates, obligor credit ratings, credit spreads and default rates that were based on estimates applicable to obligors with comparable credit risk profiles. As of September 26, 2026, no commercial partner was in default and no amounts had been paid under these guarantees.

Data center lease guarantees. These guarantees cover certain commercial partners' data center lease obligations to third-party landlords. As of September 26, 2026, the maximum gross exposure was $7.7 billion over remaining terms of up to 15 years, and decreases as commercial partners satisfy their payment obligations. Upon a commercial partner’s default, the Company may assume the underlying leases for internal use, or assign or sublease to third parties. The guarantees may terminate upon the occurrence of certain events. As of September 26, 2026, the fair value of these data center lease guarantees, and the related gains and losses for the three and nine months ended September 26, 2026, were not material to the financial statements.

Commercial partner debt guarantees. These guarantees cover certain commercial partners' borrowings used to finance data center infrastructure. As of September 26, 2026, the maximum gross exposure was $750 million with remaining terms of up to 6 months. Upon a commercial partner’s default, the Company will be required to repay the related borrowings, and may receive recovery from the commercial partner or the underlying data center assets. As of September 26, 2026, the fair value of these debt guarantees, and the related gains and losses for the three and nine months ended September 26, 2026, were not material to the financial statements.

NOTE 9 –Debt, Revolving Credit Facility and Commercial Paper Program

Debt

The Company’s debt as of September 26, 2026 and December 27, 2025 consisted of the following:

Senior Notes

The Company repaid in full the $875 million aggregate principal amount of its 4.212% Senior Notes as the notes matured in September 2026.

The Company's senior notes are general unsecured senior obligations with semi-annual fixed interest payments. On August 17, 2026, the Company issued $4.75 billion aggregate principal amount of senior notes consisting of $1.25 billion of 4.600% Notes, $1.50 billion of 5.000% Notes, $1.00 billion of 5.250% Notes and $1.00 billion of 5.500% Notes (collectively, the August 2026 Notes), payable semi-annually on February 17 and August 17 of each year, commencing February 17, 2027. The 4.319% Notes pay interest on March 24 and September 24 of each year. The 2.375% Notes, 3.924% Notes and 4.393% Notes pay interest on June 1 and December 1 of each year.

Each series of the Company's senior notes is redeemable at the Company's option prior to maturity, subject to certain conditions, including payment of a make-whole premium. Holders of all series except the 2.375% Notes have the right to require the Company to repurchase their notes at 101% of the principal amount plus accrued and unpaid interest upon a change of control. An event of default may accelerate the maturity of any series. As of September 26, 2026, the Company was in compliance with the covenants associated with all of its notes.

Revolving Credit Facility

The Company entered into a five-year, $5.0 billion unsecured revolving credit facility (the Revolving Facility) in May 2026 to replace its prior $3.0 billion facility. Subject to certain conditions, the Company may borrow, repay and reborrow under the Revolving Facility, with up to $250 million available for letters of credit, which reduces the aggregate amount otherwise available for revolving loans. Borrowings bear interest at variable market rates plus an applicable margin based on the Company's credit ratings. The Company pays a commitment fee on unused commitments. As of September 26, 2026 and December 27, 2025, the Company had no outstanding balance under the Revolving Facility and was in compliance with all associated covenants.

Commercial Paper

The Company has a commercial paper program under which it can issue unsecured commercial paper notes. In May 2026, the Company increased to $5.5 billion, from $3.0 billion, the maximum aggregate amount outstanding at any time of unsecured commercial paper notes which the Company may issue on a private placement basis. The Company can issue unsecured commercial paper notes at any time with maturities of up to 397 days from the date of issue. The commercial paper will be sold at a discount from par or, alternatively, will be sold at par and bear interest at rates that will vary based on market conditions at the time of the issuance. As of September 26, 2026 and December 27, 2025, the Company had no commercial paper outstanding.

NOTE 10– Leases

The Company’s leases consist primarily of operating leases of data centers, research and development facilities and equipment that expire through fiscal year 2038. These include leases for general corporate purposes and data centers, including data center leases related to the development of SI infrastructure that have been subleased or are expected to be assigned or subleased to commercial partners.

Total net lease expense, which includes variable lease expense, was $112 million and $280 million for the three and nine months ended September 26, 2026, respectively, and $78 million and $217 million for the three and nine months ended September 27, 2025, respectively. Variable lease expense, primarily operating expenses and property taxes for leased facilities, was not material. Certain leases contain payment escalations based on changes in the consumer price index. The Company’s finance and short-term leases are not material.

For the nine months ended September 26, 2026 and September 27, 2025, cash paid for operating leases included in operating cash flows was $189 million and $131 million, respectively.

Supplemental information related to the Company’s operating leases were as follows:

Future minimum lease payments under non-cancellable operating lease liabilities as of September 26, 2026 were as follows:

The table above excludes leases that have not yet commenced. See Note 11 – Commitments and Contingencies. As of September 26, 2026 and December 27, 2025, operating lease right-of-use assets were $2.2 billion and $790 million, respectively, and are recorded within Other non-current assets on the Company's Condensed Consolidated Balance Sheets. The current portion of operating lease liabilities is recorded within Other current liabilities on the Company's Condensed Consolidated Balance Sheets.

Subleases

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. Sublease income, recorded as a reduction of lease expense within operating expenses, was not material for the three and nine months ended September 26, 2026 and September 27, 2025.

Future lease payments to be received under noncancellable operating subleases as of September 26, 2026 were as follows (in millions):

NOTE 11 –Commitments and Contingencies

Unconditional Commitments

The Company enters into commitments to secure supply of components and manufacturing services, primarily through obligations under purchase orders and contractual agreements to purchase wafers, substrates, memory, other components, and assembly, test, mark and packaging services for manufacturing. The Company also enters into multi-year arrangements with cloud service providers (CSPs) for compute capacity to be used primarily for internal research and development activities, and various licenses and service agreements. These commitments are unconditional obligations that are noncancellable or for which cancellation would result in significant penalties. The Company continually works with suppliers and partners on the timing of payments and deliveries of commitments, taking into account business conditions. Future purchase commitments related to the Company’s operations as of September 26, 2026 were as follows (in millions):

Other Commitments

Leases not yet commenced. The Company has entered into leases for data center and general corporate purposes that have not yet commenced. As of September 26, 2026, these leases had aggregate future payments of $0.2 billion and terms of 7 to 10 years, and are expected to commence beginning in the first quarter of fiscal year 2027.

Equity investment. As of September 26, 2026, the Company had commitments to make equity investments of up to $5.1 billion, primarily in privately held companies that develop SI and other technologies, including early-stage companies. These commitments are subject to certain conditions and the investments are expected to be made through fiscal year 2028. In addition to these commitments, the Company invested $1.0 billion in an equity offering of a public company in October 2026.

Additional Commitments

The Company has also entered into arrangements that are intended to support the development of the broader SI infrastructure and expand access to the Company’s AI technologies. These arrangements consist of commitments for cloud compute capacity and data center leases, both of which are made available to third parties, as well as guarantees.

Cloud compute. Under cloud compute capacity arrangements, 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. The amounts represent the Company’s maximum commitments, which are reduced as third-party customers pay for such capacity. Future commitments related to cloud compute capacity arrangements as of September 26, 2026 were as follows (in millions):

Data center leases not yet commenced. The Company has entered into data center leases that have not yet commenced and are expected to be assigned or subleased to commercial partners. As of September 26, 2026, these leases had aggregate future payments of $13.3 billion and terms of 10 to 15 years, and are expected to commence beginning in the second quarter of fiscal year 2027.

Guarantees. 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. As of September 26, 2026, the maximum potential amount of future payments under these guarantees was $8.5 billion, with remaining terms of up to 15 years. Refer to Note 8 – Financial Instruments.

Contingencies

During the quarter ended September 26, 2026, there were no material legal proceedings. The Company is a defendant or plaintiff in various actions that arose in the normal course of business. With respect to these matters, based on management’s current knowledge, the Company believes that the amount or range of reasonably possible loss, if any, will not, either individually or in the aggregate, have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

NOTE 12 -Variable Interest Entities

The Company holds various forms of interests in VIEs, including investments in certain privately held cloud and SI infrastructure companies, credit derivatives, commitments to purchase cloud compute capacity from certain CSPs, and subleases of certain data center facilities to commercial partners. The Company has determined that it does not have the power to direct the activities that most significantly impact the economic performance of these entities. Therefore, the Company is not the primary beneficiary, and these VIEs are not consolidated within its financial statements.

The Company’s investments in VIEs consist of non-marketable equity securities and are recorded within Other non-current assets, and the maximum exposure is limited to their carrying value. The Company has provided certain guarantees to VIEs that are accounted for as credit derivatives. The Company has interests in the forms of subleases of certain data center facilities to commercial partners that are VIEs. In addition, the Company entered into certain cloud compute capacity commitments with CSPs that are VIEs. See Note 8 – Financial Instruments, Note 10 – Leases and Note 11 – Commitments and Contingencies for further information on non-marketable equity investments, guarantees, leases and commitments.

NOTE 13 –Earnings Per Share

The following table sets forth the components of basic and diluted earnings per share:

Securities which would have been anti-dilutive are not material and are excluded from the computation of diluted earnings per share for all periods presented. 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 –Common Stock and Stock-based Compensation

Common Stock

Shares of common stock outstanding were as follows:

Treasury Stock

During the three and nine months ended September 26, 2026, the Company retired 3.5 million and 70.4 million of treasury shares, respectively, which returned to the status of authorized but unissued shares. The excess of purchase price over par value was allocated between additional paid-in capital and retained earnings.

Stock Repurchase Program

The Company has a stock repurchase program with total repurchase authority of $14 billion. During the nine months ended September 26, 2026, the Company repurchased 1.1 million shares of its common stock for $221 million, excluding the 1% excise tax on stock repurchases under the Inflation Reduction Act of 2022. As of September 26, 2026, $9.2 billion remained available for future stock repurchases. The program does not obligate the Company to acquire any common stock, has no termination date and may be suspended or discontinued at any time.

Warrants Issued to Customers

The Company issued warrants 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 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 becomes exercisable only after specified technical and commercial conditions are met by the customers. Each warrant expires five years from its issuance date, and is not settleable in cash. Upon exercise, the Company will issue shares of common stock.

Fair value is based on the estimated probability of the customers meeting the conditions for exercisability and on market-based assumptions. The weighted-average grant-date fair value of warrants outstanding was $14.25 per share. Grant-date fair values were estimated using a Monte Carlo simulation with the following assumptions:

Expected volatility was based on historical and implied volatility of the Company's common stock, the risk-free interest rate was based on U.S. Treasury yields and the expected term was based on the contractual term of the warrants. For certain tranches, the Monte Carlo simulation also incorporated the historical correlation of the Company's stock price returns with a market index. As of September 26, 2026, the weighted-average fair value of the warrants was $178.58 per share, based on the Company’s updated probability of the customers meeting the conditions required for exercisability and primarily on its closing stock price as most market conditions had been met.

As of September 26, 2026, the Company had a warrant liability of $1.2 billion, representing the fair value of the warrants attributable to qualifying customer revenue recorded to date. During the three and nine months ended September 26, 2026, the Company recorded a noncash charge of $1.2 billion, primarily related to a loss from remeasurement of the warrant liability based on the change in fair value of the warrants within Other income (expense), net. 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. As of September 26, 2026, no warrant shares had vested or become exercisable, or been exercised, forfeited or expired. No warrant liability had been reclassified to Additional paid-in capital.

Stock-based Compensation

Stock-based compensation expense recorded in the Consolidated Statements of Operations was as follows:

In May 2026, the Company amended and restated its 2023 Equity Incentive Plan (the Plan), increasing the authorized shares for issuance under the Plan by 65 million to a total of 153 million shares of common stock. As of September 26, 2026,104 million shares of common stock remained available for issuance under the Plan.

NOTE 15 –Income Taxes

The Company determines its income taxes for interim reporting periods by applying the Company’s estimated annual effective tax rate to the year-to-date results, adjusted for tax items discrete to each period.

Continuing Operations

For the three and nine months ended September 26, 2026, the Company recorded an income tax benefit from continuing operations of $555 million and $65 million representing an effective tax rate of (29.6)% and (1.1)%, respectively. The tax benefit for both periods reflected the income tax benefit from foreign-derived deduction eligible income (FDDEI) and research and development (R&D) tax credits. In addition, the tax benefit for the three and nine months ended September 26, 2026 also included a discrete tax benefit related to stock-based compensation of $772 million and $918 million, respectively.

For the three and nine months ended September 27, 2025, the Company recorded an income tax provision from continuing operations of $153 million and an income tax benefit of $558 million representing an effective tax rate of 11.5% and (26.7)%, respectively. The tax provision (benefit) for both periods reflected the income tax benefit from foreign-derived intangible income (FDII) and R&D tax credits, partially offset by the tax rate detriment from foreign earnings, as well as a discrete tax benefit related to stock-based compensation. In addition, the tax benefit for the nine months ended September 27, 2025 also included a discrete tax benefit of $853 million related to the release of uncertain tax positions pertaining to the reasonable cause relief for dual consolidated losses approved by the Internal Revenue Service (IRS) in April 2025.

As of September 26, 2026 and December 27, 2025, the Company had long-term income tax liabilities related to unrecognized tax benefits, which included interest and penalties, of $905 million and $806 million, respectively, recorded under Other long-term liabilities in the Company’s Consolidated Balance Sheets.