AMD Stock Drops Despite Strong AI Performance, Q3 Results Raise Mixed Reactions
Advanced Micro Devices (AMD) recently released its Q3 2024 earnings, reporting earnings per share (EPS) of $0.92, which met Wall Street expectations, while revenue slightly exceeded forecasts at $6.82 billion. Despite these solid figures, AMD’s stock experienced a 7% decline in after-hours trading as future guidance for Q4 earnings fell short of investor hopes. The earnings report highlighted some impressive growth areas for AMD, especially in its data center and AI segments, yet also revealed mixed performance across other business units.
One standout sector for AMD was its data center business, which saw revenue doubling year-over-year for the second quarter in a row. This growth has been fueled by high demand for AMD’s Instinct-branded GPUs, essential components for artificial intelligence (AI) training and deployment. The data center segment generated $3.5 billion, an impressive 122% increase over the previous year, primarily due to the strong ramp-up in shipments of AMD’s Instinct GPUs and EPYC CPUs. AMD has become the second-largest provider of data center GPUs, competing closely with industry giant Nvidia, whose stock also experienced significant gains due to increased demand for AI chips.
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AMD has been rapidly advancing its AI capabilities, most recently announcing its MI325X, an AI chip expected to accelerate growth in the high-demand AI market. AMD projects AI chip sales to reach $5 billion this year, a notable increase from its earlier $4.5 billion estimate. With an anticipated market valuation of $500 billion by 2028, AMD’s investment in AI GPUs suggests it is positioning itself to capture substantial future growth within this sector. Lisa Su, AMD’s CEO, expressed high confidence in the product’s reception, noting robust interest from customers and partners in AMD's MI325X, which is expected to start shipping this quarter.
Although AMD has made strides in data center and AI markets, some segments have lagged. The gaming division, which includes sales of semi-custom chips for gaming consoles, saw a substantial drop, declining by 68% year-over-year. This drop in gaming revenue reflected a slowdown in demand for gaming consoles like the PlayStation 5, highlighting the cyclical nature of gaming hardware sales and the shift in consumer priorities. The embedded business segment, which offers lower-cost processors for specialized applications, also fell by 25% compared to last year, as customers adjusted their inventory levels.
In the client segment, however, AMD saw a significant 23% increase in sales of Ryzen processors. Microsoft’s recent release of high-end laptops equipped with AMD Ryzen processors has contributed to AMD’s client segment revenue. Additionally, AMD's recent focus on AI-powered Ryzen processors for mobile devices has positioned it well in the competitive market of AI-integrated PCs.
While AMD’s financials showcased growth, Q4 guidance seemed conservative, predicting revenue of $7.5 billion, slightly below analyst expectations. AMD also expects a 22% year-over-year decline for the December quarter. With non-GAAP gross margins projected around 54%, AMD remains optimistic about its growth opportunities despite the cautious forecast.
Overall, AMD’s latest earnings report reflects its ambition to be a leader in AI and data centers, yet highlights challenges in other areas, such as gaming.
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