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 (GPUs) that power the new technology.
The Santa Clara, Calif.-based tech giant is, however, has built solid gains from its Client business, which focuses on processors and graphics cards for laptop and desktop computers following the introduction of 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.
Investor expectations in the AI space, however, remain lofty and even a 71% year-on-year gain for AMD’s data center segment revenues, which came in at $3.9 billion, fell shy of Wall Street’s $4.15 billion forecast.
AMD client segment impresses
Client revenues filled some of the gap, rising 58% from the prior-year period to $2.31 billion, and helping AMD post an overall topline beat of $7.66 billion and adjusted earnings of $1.09 per share.
Looking into the current quarter, however, AMD expects overall revenues to slow to around $7.1 billion “driven by strong growth in our data center and the client business” that will offset a “significant slump” in gaming revenues.
AMD didn’t provide a specific guide for AI-related revenues from the data center division, which topped $5 billion last year, 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.
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“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, taking it to $140 per share, said he expects the ramp of AMD’s new MI355 GPU to accelerate data center revenues of 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 sales
Barclays analyst Tom O’Malley said that AMD’s client division was clearly the “highlight” of the quarter that lead 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.”
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Bank of America analyst Vivek Arya, who shaved $20 from his AMD price target, taking it to $135 per 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.
CEO Lisa Su remains optimistic
Other price target changes include Raymond James analyst Srini Pajjuri, who lowered it by $30 to $150 per share, and Rosenblatt analyst Hans Mosesmann, who took it to $225 from $250 per share.
“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.
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“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 9.4% lower in premarket trading to indicate an opening bell price of $108.28 each, the lowest since November of 2023.
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