AMD’s Weak Q4 Forecast Drops Stock 7% – What’s Behind the Decline?

AMD’s Dim Q4 Forecast Leads to 7% Stock Drop in Post-Market Trading

AMD shares plunged by 7% in after-hours trading following its fourth-quarter forecast, which heightened investor worries about constrained semiconductor supply impacting earnings and revenue targets. For the third quarter, AMD achieved $6.82 billion in revenue and $0.92 in adjusted EPS, surpassing analyst predictions. Experts had projected AMD’s Q3 figures at $6.7 billion in revenue and $0.70 in EPS, marking the results as a solid performance. However, AMD’s Q4 revenue forecast, set between $7.2 billion and $7.8 billion with a midpoint at $7.5 billion, fell short of analyst expectations at $7.54 billion.

Data Center Revenue Thrives Amid Tepid Q4 Outlook

Despite the weaker-than-anticipated Q4 guidance, AMD’s data center division has continued to shine, benefiting from surging demand in high-performance computing. In Q3, AMD’s data center segment generated $3.5 billion, representing a 122% year-over-year growth. Its operating margin for this sector reached 29%, a ten percentage point increase over the prior year’s 19%.

However, even though AMD’s data center revenue experienced a nearly $2 billion surge, these gains were overshadowed by a substantial decline in gaming revenue. AMD’s gaming division, responsible for tracking GPU and gaming GPU sales, recorded $462 million in Q3, marking a staggering $1 billion drop from last year’s $1.5 billion. According to AMD’s investor report, this decline stemmed from “lower semi-custom revenue,” signaling that weaker console sales contributed significantly to these losses.

Strong Consumer Demand Amid Cautious Forecast

Despite the reserved Q4 guidance, AMD CEO Lisa Su reassured investors, affirming robust demand for AMD products in data centers and related workloads. The Client segment, covering consumer CPU performance, also posted positive results, with a 29% annual growth that brought segment revenue to $1.9 billion. AMD’s Client division targets AI-integrated consumer products, primarily through laptop solutions.

AMD, along with major GPU competitor NVIDIA, has capitalized on the rise of AI-driven semiconductors. However, unlike NVIDIA, AMD has not yet achieved the triple-digit percentage growth in 2024, partly due to its smaller scale and the industry’s preference for NVIDIA GPUs in AI workloads.

While AMD’s softer-than-expected forecast led to a 7% stock decline in post-market trading, this drop was limited to AMD. NVIDIA’s shares remained steady during the day and post-market, while the American Depository Receipts (ADRs) for TSMC and shares of struggling chip giant Intel Corporation displayed similar trends.