Advanced Micro Devices shares moved sharply lower in early Wednesday trading after the chipmaker underwhelmed Wall Street with a muted sales outlook for its AI-focused business following a solid set of fourth quarter earnings.
Advanced Micro Devices (AMD) , which is looking to carve into Nvidia's (NVDA) commanding market share in the AI-chip space, has struggled to capture investor attention despite the launch of new graphics processing units that power the new technology.
The Santa Clara, Calif., tech giant has, however, built solid gains from its Client business, which focuses on processors and graphics cards for laptop and desktop computers, after it introduced its Ryzen chip architecture in 2017.
"AMD is the only provider with the breadth of products and software expertise needed to power AI from end-to-end across data center, edge and client devices," CEO Lisa Su told investors on a conference call late Tuesday.
"And we believe this places AMD on a steep long-term growth trajectory, led by the rapid scaling of our data-center AI franchise for more than $5 billion of revenue in 2024 to tens of billions of dollars of annual revenue over the coming years," she added.
AMD CEO Lisa Su still sees a total addressable market for data-center chips of around $500 billion by 2028. I-HWA CHENG/Getty Images
Investor expectations in the AI space, however, remain lofty. And even a rounded 70% year-on-year gain for AMD's data center segment revenue, which came in at $3.9 billion, fell shy of Wall Street's $4.15 billion forecast.
AMD client segment impresses
Client revenue filled some of the gap, rising 58% from the year-earlier period to $2.31 billion and helping AMD post an overall topline beat of $7.66 billion and adjusted earnings of $1.09 a share.
Looking into the current quarter, however, AMD expects overall revenue to slow to around $7.1 billion, "driven by strong growth in our data center and the client business." That growth, it said, will offset a "significant slump" in gaming revenue.
AMD didn't provide a specific guide for AI-related revenue from the data center division, which topped $5 billion a year earlier, but still hinted at solid overall growth.
"The overall data center business will grow strong double digits certainly; both the server product line as well as the data center GPU product line will grow strong double digits," Su said.
"And from the shape of the revenue you would expect that the second half would be stronger than the first half, just given MI350 will be a catalyst for the data center GPU business," she added.
KeyBanc Capital Markets analyst John Vinh, who who trimmed his price target on the stock by $10 to $140 a share, said he expected the ramp of AMD's new MI355 GPU to accelerate data center revenue in the second half of the year.
"Despite the disappointment in data-center revenues, we remain overweight the stock and still expect AMD to gain share and be a beneficiary in AI over the long term," Vinh said.
New chips could stoke second-half AMD sales
Barclays analyst Tom O'Malley said that AMD's client division was clearly the "highlight" of the quarter, which led to its earnings beat and near-term forecast.
"The rub is that offsetting that strength is data center, where MI300 undergrew the server CPU business and is guided to just flattish for [the first half of this year]," added O'Malley, who reiterated his $140 price target and 'overweight' rating on the stock.
"On the positive side, the company is moving through AI product transitions faster and plans to pull MI350 into mid-2025, then introduce a new compute and rack-level architecture with MI400 several quarters later," O'Malley said.
"We think the stock looks more attractive on this pullback (growing earnings double digits year-over-year), and management has a long history of executing on promised share gains."
Bank of America analyst Vivek Arya, who shaved $20 from his AMD price target, taking it to $135 a share with a 'neutral' rating, held a different view.
"AMD has not (yet) managed to articulate how it can carve an important niche versus Nvidia’s dominance and custom ASIC chip's growing importance in AI silicon, with any upside surprise largely dependent on share gains against Intel in more mature markets," he said.
AMD CEO Lisa Su remains optimistic
Other price target changes include Raymond James analyst Srini Pajjuri, who lowered it by $30 to $150 a share, and Rosenblatt analyst Hans Mosesmann, who took it to $225 from $250.
"Without guiding for a specific number in 2025, one of the comments that we made is we see this business growing to tens of billions, as we go through the next couple of years," Su told investors late Tuesday.
"And that gives you a view of the confidence that we have in the business and particularly our road map is getting stronger with each generation [of GPUs]," she added
AMD shares were last marked 10.25% lower in premarket trading to indicate an opening bell price of $107.28 each, the lowest since November 2023.
