Advanced Micro Devices (AMD) recently released its earnings report, revealing a fourth-quarter revenue forecast that fell slightly below market expectations. The company also announced an ambitious projection for its artificial intelligence (AI) chip sales, estimating revenues of $5 billion for 2025. Despite these optimistic figures, investor reactions were tepid, leading to a nearly 7% drop in AMD’s stock during after-hours trading. This decline erased a portion of the gains the stock had accrued over the previous three days, where it had seen an 8% increase, as well as most of the over 10% rise experienced throughout the year.
The demand for AI chips is surging, particularly from major tech players like Microsoft and Meta. However, the supply from AMD, as well as its larger competitor Nvidia, is struggling to keep pace, hindering the companies’ ability to fulfill orders. AMD’s CEO, Lisa Su, noted that the supply of AI chips would remain constrained going into the next year. “AMD’s stock was priced for a beat and raise,” said Kinngai Chan, an analyst at Summit Insights. “Clearly, AMD’s fourth-quarter outlook was not good enough for investors.”
AMD’s data center business, which encompasses its AI chip sales, reported a remarkable revenue increase of 122%, reaching $3.5 billion. Despite this growth, AMD continues to trail Nvidia, which holds a dominant 80% market share in the AI semiconductor sector. Su’s revised forecast for AI chip sales—an increase from $4.5 billion to $5 billion—came during a recent earnings call with analysts, where she highlighted the growing adoption of AMD’s AI chips by Microsoft and Meta. Notably, Microsoft and Oracle are offering the MI300X chips as part of their cloud services.
Looking ahead, many analysts predict that Nvidia will maintain its dominant position in the market for the foreseeable future. This is largely due to Nvidia’s comprehensive AI ecosystem, which includes proprietary software like CUDA and advanced networking equipment. TSMC, the world’s largest contract chip manufacturer, indicated in July that production capacity for AI chips will remain tight through 2025, presenting a significant obstacle to the supply of these advanced semiconductors. This limitation has a direct impact on AMD’s ability to increase sales of its cutting-edge AI processors, according to Michael Schulman, chief investment officer at Running Point Capital.
For the fourth quarter, AMD anticipates revenue of approximately $7.5 billion, with a margin of plus or minus $300 million. This forecast falls short of analysts’ average expectations of $7.54 billion, according to data from LSEG. However, the company did project an adjusted gross margin of about 54%, aligning with analyst expectations. In the third quarter, AMD reported revenue of $6.82 billion, which exceeded estimates of $6.71 billion. The company also posted adjusted earnings of 92 cents per share, consistent with analyst predictions.
The results from AMD affected the broader semiconductor sector during after-hours trading. Stocks for other chipmakers reflected this sentiment, with Arm Holdings experiencing a 1.7% decrease, Nvidia’s stock falling by 0.3%, and Intel declining by 0.4%. Chip equipment manufacturer Lam Research also saw a drop of 0.8%.
As investors digest AMD’s mixed results—strong earnings paired with a less-than-stellar forecast—there is a general expectation that they will begin to consider the implications for the broader AI-chip and semiconductor markets. “Most investors, once they digest AMD’s good results combined with their lackluster forecast, will try to extrapolate what that means for the rest of the AI-chip and semiconductor market,” Schulman commented.
In conclusion, while AMD’s recent performance highlighted impressive growth in specific sectors, the company’s inability to meet the revenue forecasts and navigate supply chain challenges led to a cautious outlook from investors. The intense demand for AI chips continues to create a competitive landscape, particularly as tech giants strive for innovation. AMD’s future success will hinge on its ability to ramp up production and better position itself against formidable competitors like Nvidia, which dominate the AI semiconductor space. As the market evolves, all eyes will be on how AMD navigates these challenges and capitalizes on the growing demand for AI technologies.
