AMD Shares Slump as AI Growth Fails to Meet Expectations

Image Credit: Reuters

AMD's earnings and revenue outlook exceeded analyst expectations, but that wasn’t enough to reassure investors eager for the chipmaker to gain ground against AI leader Nvidia.  

Shares of the Santa Clara, California-based company dropped about 10% in after-hours trading. AMD's stock fell roughly 18% last year, while its larger rival, Nvidia, surged over 171%. The company has been striving to capture a bigger share of the AI processor market, which Nvidia dominates, supplying major tech firms like Amazon and Microsoft.  

AMD reported $3.9 billion in fourth-quarter data center revenue, falling short of the $4.15 billion consensus estimate. The data center division, which includes AMD’s AI processors, serves as a key indicator of the company’s AI revenue.  

For 2024, AMD said it generated over $5 billion from AI chips. However, during a conference call, CEO Lisa Su noted that data center revenue for the current quarter is expected to decline by about 7% compared to the previous quarter. She did not provide a specific forecast for AI chip sales but stated the company anticipates "tens of billions" in revenue over the next few years.  

Summit Insight analyst Kinngai Chan remarked, "AMD's AI GPU performance may not be meeting investor expectations. Nvidia continues to widen the gap in both performance and value."  

AMD's outlook comes as tech giants like Microsoft and Meta invest heavily in developing their own AI chips to handle the vast data requirements of generative AI. Last year, both companies introduced new AI chip versions, raising doubts about AMD’s ability to stay competitive in the AI infrastructure race.  

Meanwhile, firms like Broadcom and Marvell support companies in designing custom AI chips, diverging from AMD and Nvidia’s off-the-shelf processor approach. Su stated that AMD is actively working with customers to develop custom AI chips, similar to Nvidia, which has also entered this space.  

"We are deeply engaged in multiple custom chip discussions with our customers," Su said. "They want to build on our core technology and innovate further."  

Despite AMD’s efforts, Nvidia maintains nearly 80% of the AI chip market, largely due to its CUDA software, which has become an industry standard. Since CUDA-based applications don’t easily transfer to AMD chips, switching providers can be costly for customers.  

For the first quarter, AMD projects revenue of approximately $7.1 billion, plus or minus $300 million, surpassing analysts' estimates of $6.99 billion, according to LSEG data.  

Additionally, as one of the largest suppliers of PC chips, AMD is positioned to benefit from renewed consumer and business demand for AI-capable personal computers following a market downturn.  

Adjusted for stock-based compensation and other factors, AMD posted a fourth-quarter profit of $1.09 per share, slightly above the consensus estimate of $1.08. Revenue rose 24% to $7.66 billion, surpassing the expected $7.53 billion.

 

 

 

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