TLDR:
- AMD shares dropped 8% following Q3 earnings report and conservative forecast
- Company expects $5 billion in AI chip sales for 2025
- Data center segment doubled in sales, reaching $3.5 billion
- Gaming category declined 68% year-over-year
- AMD stock is up 156% since end-2022 despite recent drop
Advanced Micro Devices (AMD) experienced an 8% decline in share price Wednesday following its third-quarter earnings report, as investors reacted to what they viewed as a conservative outlook for the company’s artificial intelligence chip business.
The semiconductor manufacturer reported earnings per share of 92 cents, matching analyst expectations, while revenue slightly exceeded forecasts at $6.82 billion. Despite these results aligning with market estimates, the company’s stock faced pressure in trading.
AMD’s data center segment showed remarkable growth, doubling its sales for the second consecutive quarter to reach $3.5 billion. This increase was primarily driven by strong demand for the company’s Instinct-branded GPUs used in artificial intelligence applications.
The company’s fourth-quarter guidance projected sales of approximately $7.5 billion, meeting but not exceeding market consensus. AMD also set a target of $5 billion in AI chip sales for 2025, up from its previous forecast of $4.5 billion.
CEO Lisa Su addressed supply chain constraints during the earnings call, noting that chip supplies would remain tight heading into next year. This announcement raised concerns among investors about the company’s ability to meet growing demand for AI processors.
The gaming division faced challenges, reporting a 68% year-over-year decline in sales. AMD attributed this decrease to reduced revenue from semi-custom products, including chips used in gaming consoles like the Sony PlayStation 5.
The client segment, which includes PC processors, showed improvement with a 23% increase to $1.9 billion. During the quarter, AMD’s chips were featured in high-end laptops marketed as “Copilot+” machines, designed to run advanced AI applications within Windows.
The embedded business segment, focusing on industrial and specialized applications, experienced a 25% decline, with sales falling to $927 million.
Despite the recent stock decline, AMD has been one of the main beneficiaries of the AI boom, with its shares rising nearly 156% since the end of 2022. The company currently trades at 32 times its 12-month forward earnings estimates.
Market analysts have shown mixed reactions to the results. At least 10 analysts lowered their target price for AMD stock, while 8 raised their expectations, resulting in a median price target of $187.50.
The company’s gross margin expanded to 54%, which AMD attributed to increased data center revenue. This improvement in profitability metrics suggests underlying strength in high-margin product lines.
AMD announced its new artificial intelligence chip, the MI235X, in October. Customer interest has been strong, with production shipments scheduled to begin in the current quarter.
The broader chip sector showed some sympathy movement, with companies like Arm and Qualcomm falling more than 2%. However, industry leader Nvidia saw a smaller decline of 0.3%.
AMD’s quarterly net income reached $771 million, or 47 cents per share, compared to $299 million, or 18 cents per share, in the same period last year.
The company maintains its position as the second-largest vendor of data center GPUs, competing in a market that AMD estimates will be worth $500 billion by 2028.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support