Advanced Micro Devices (AMD) shares saw an 8% decline on Wednesday after the chipmaker’s revenue forecast for the upcoming quarter failed to meet expectations of investors who have been banking on rapid growth fueled by artificial intelligence.
The dip follows a surge in AMD stock throughout 2023, driven by optimism surrounding AI-driven chip demand. However, the third-quarter earnings report indicated a more conservative outlook for the near future, which has led some analysts to adjust their price targets for AMD.
Despite AMD’s positive third-quarter results—with revenue reaching $6.82 billion and earnings per share matching analyst expectations at 92 cents—investors were disappointed by the company’s projections. The fourth-quarter revenue guidance of $7.5 billion was in line with expectations but did not show the major upside many AI-focused investors had anticipated. AMD reported that sales of its AI-focused data center chips more than doubled for the second consecutive quarter, contributing to a notable 54% increase in gross margin. However, CEO Lisa Su noted that production constraints are expected to tighten supply of AMD’s AI chips in the coming year, underscoring the challenges of balancing soaring demand with manufacturing limitations.
AMD, a major player in the data center graphics processing unit (GPU) market, ranks second only to Nvidia. However, the market reaction suggests that Nvidia’s supply capabilities are not facing the same level of constraints, with Nvidia shares remaining relatively steady compared to AMD’s decline.
While AMD’s AI and data center sectors posted significant growth, other business segments had mixed results. AMD’s gaming sector, which supplies custom chips for consoles such as Sony’s PlayStation 5, saw a sharp 68% year-over-year decline. Meanwhile, sales in the embedded segment, which includes industrial and specialty chips, dropped 25% annually to $927 million.
Analysts from research firm Jefferies cautioned that while AMD’s prospects remain promising, its AI chip business may need more time to impact overall revenue meaningfully. With some analysts lowering their price targets while others raised them, the median target now stands at $187.50, representing a potential 13% upside from AMD’s last closing price.
Looking to the future, AMD projects that AI will drive a significant portion of its growth, with its AI GPU market estimated to reach $500 billion by 2028.
