AMD Stock Drops 7% After Weak Q4 Forecast Despite Strong Data Center Performance

AMD shares fell 7% in after-hours trading following Q4 guidance that missed Wall Street expectations. Despite surpassing Q3 revenue and earnings estimates, AMD’s revenue forecast of $7.2–$7.8 billion raised concerns over supply constraints impacting its growth potential, particularly within gaming.

AMD Surpasses Q3 Expectations, But Weak Q4 Guidance and Gaming Revenue Decline Raise Concerns

According to Wccftech, the publication of AMD's fourth-quarter guidance prompted a 7% decline in AMD shares in after-market trading, which exacerbated investor apprehensions regarding the limited capacity of semiconductor designers to achieve their ambitious revenue and profit objectives due to supply constraints. AMD's third-quarter revenue of $6.82 billion and adjusted earnings per share (EPS) of $0.92 surpassed analyst expectations of $6.7 billion in revenue and $0.70 EPS, indicating a significant improvement. Nevertheless, AMD's Q4 revenue guidance of $7.2 billion to $7.8 billion, with a midpoint of $7.5 billion, was below the $7.54 billion analysts had anticipated.

While Q4 guidance was disappointing, AMD’s data center segment continued to show strength, fueled by the demand for high-performance computing solutions. During Q3, the data center division generated $3.5 billion in revenue, reflecting a 122% annual growth. The data center operating margin also reached 29%, a ten-percentage point increase from the previous year’s 19%.

However, robust data center gains were offset by a significant decline in AMD's Gaming division, which covers its GPU and gaming GPU sales. Gaming revenue was $462 million for Q3, down sharply from $1.5 billion the previous year. AMD attributed this decline to "lower semi-custom revenue," hinting at weaker console sales as a contributing factor.

AMD CEO Reassures on Data Center Demand Amid Modest Growth and Q4 Guidance Concerns

Despite the softer Q4 outlook, AMD CEO Lisa Su reassured investors about the strong demand for AMD’s data center products and workloads. Additionally, AMD’s Client segment, which includes consumer CPU products and targets consumer AI applications, grew by 29% annually to reach $1.9 billion, driven by demand in the laptop market.

AMD has benefited from rising demand for AI-focused semiconductors and its larger competitor, NVIDIA. However, unlike NVIDIA, which saw triple-digit share price gains in 2024, AMD has experienced more modest growth, attributed to its smaller scale and the industry's preference for NVIDIA GPUs in AI-related workloads.

Following AMD’s revised guidance, which led to the 7% share price decline, rival shares remained unaffected. NVIDIA traded flat, along with TSMC’s American Depository Receipts (ADRs) and Intel Corporation shares, following similar trends in regular and after-market trading.