Shares of Advanced Micro Devices (NASDAQ: AMD) took a painful hit on Wednesday. Following the chip designer’s fourth-quarter report, the stock fell as much as 10.9% in the morning session. By 1:45 p.m. ET, AMD had recovered slightly to a 7.8% price drop.
Did Tuesday evening’s report change the game for AMD and its investors?
Why AMD’s stock is down today, despite strong Q4 results
AMD actually exceeded analyst expectations across the board in the fourth quarter. Both earnings and revenues landed slightly ahead of the analyst community’s consensus targets. Indeed, the stock rose as much as 5% in Tuesday’s after-hours trading.
But then the earnings call started, and CEO Lisa Su described a gloomier market for artificial intelligence (AI) products than Wall Street had expected. AMD accounts for AI-related products, such as Instinct AI accelerators and EPYC system control processors in the data center segment. That division, and AMD overall, should see revenues falling 7% in the current quarter, as compared to the fourth-quarter results.
Many investors saw this revenue drop as a sharp reversal of AMD’s fortunes. Su’s comments suggest that the first quarter’s data center sales should land near the third-quarter figure, erasing a 9% gain in the fourth-quarter update.
Is AMD’s AI business busted?
AMD’s results have always been quite seasonal, showing stronger sales at the end of the year. It’s just a normal business pattern at work.
At the same time, data center sales now account for more than half of AMD’s total sales, up from 37% in the year-ago quarter. The new Instinct MI300X accelerator is the exclusive engine behind some new AI products from Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT), and AI chips stood for more than US$5 billion of AMD’s 2024 revenues. Su expects “tens of billions of dollars of annual revenue” from these products in the near future.
In other words, last night’s report was not the end of the road for AMD’s AI ambitions. It was just a pretty standard speed bump on a volatile road.
