Advanced Micro Devices (AMD) experienced an 8% decline in its shares on Wednesday after the company’s revenue forecast did not meet the expectations of AI-focused investors. Based on premarket movements, AMD could lose approximately $20 billion in market value.
The company had been one of the major beneficiaries of the chip demand surge driven by the rise of generative AI, with its shares increasing nearly 156% since the end of 2022. However, AMD’s soft quarterly revenue forecast and a $5 billion target for AI chip sales in 2025 indicated that demand for its processors was growing faster than production capabilities. CEO Lisa Su noted that chip supplies would remain tight going into the next year.
Bernstein analyst Stacy Rasgon commented on the situation, stating, “It is probably unpalatable for an ‘AI name’ to even guide inline, let alone below.” Jefferies analysts added, “AI still dominates this (AMD) story, and while the company did raise (sales expectations) every quarter this year, the concern from here is that AMD won’t be able to provide upside to Street estimates that are already $8 billion-$9 billion for calendar 2025.”
AMD reported third-quarter earnings per share of 92 cents, aligning with analyst expectations, while revenue slightly surpassed forecasts at $6.82 billion. The company’s data center segment showed significant growth, doubling its sales for the second consecutive quarter to reach $3.5 billion. This growth was primarily driven by strong demand for AMD’s Instinct-branded GPUs used in artificial intelligence applications.
For the fourth quarter, AMD provided guidance projecting sales of approximately $7.5 billion, which met but did not exceed market consensus. Additionally, the company set a target of $5 billion in AI chip sales for 2025, an increase from its previous forecast of $4.5 billion. Despite these projections, concerns about tight chip supplies have raised questions about AMD’s ability to meet the growing demand for AI processors.
The gaming division of AMD faced challenges, reporting a 68% year-over-year decline in sales. This decrease was attributed to reduced revenue from semi-custom products, including chips used in gaming consoles like the Sony PlayStation 5. On the other hand, 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.
Market Reactions
Following the earnings report, at least 10 analysts lowered their target price for AMD stock, while 8 analysts raised their views. This resulted in a median target price of $187.50, according to LSEG data, representing an upside of nearly 13% to the company’s last closing price. AMD currently trades at nearly 32 times its 12-month forward earnings estimates, compared with 36 times for Nvidia.
The broader chip sector responded with similar movements, as companies like Arm and Qualcomm saw their shares fall by more than 2%. However, industry leader Nvidia experienced a smaller decline of 0.3%, indicating that investors did not anticipate a similar supply shortage impact on the company. Both Nvidia and AMD rely on chip-making giant TSMC to manufacture their advanced AI chips, but analysts have shown little concern regarding Nvidia’s AI chip supply.
Despite the recent stock decline, AMD has maintained its position as one of the main beneficiaries of the AI boom. The company’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. AMD also announced its new artificial intelligence chip, the MI235X, in October, with customer interest remaining strong and production shipments scheduled to begin in the current quarter. The company maintains its status as the second-largest vendor of data center GPUs, competing in a market that AMD estimates will be worth $500 billion by 2028.
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