AMD showed strong momentum in the artificial intelligence space in Q3. So why are stock prices falling?
Advanced Micro Devices (AMD -9.98%) stock is falling following the company’s third-quarter earnings release on Wednesday. Shares of the semiconductor specialist company were down 9.6% as of 1 p.m. ET.
AMD released its third-quarter results after the market closed yesterday, achieving earnings in line with market expectations and sales exceeding expectations. The company reported non-GAAP (adjusted) earnings per share of $0.92 on revenue of $6.82 billion, beating Wall Street’s average sales estimate of $6.71 billion for the period. However, despite the quarter’s sales beat, management’s outlook left investors in a bearish mood.
AMD releases solid results in Q3
Although the stock is down significantly in today’s trading, AMD’s third quarter results were not an isolated cause for concern. Overall revenue for the period increased 17.6% year over year, and adjusted earnings per share increased 31% year over year.
The company has seen positive momentum in its critical data center segment, where revenue grew 122% year-over-year, driven by momentum from its Instinct GPUs and EPYC central processing units. Meanwhile, client segment revenue increased 29% year over year to $1.9 billion. Meanwhile, gaming segment revenue fell 69% year over year to $462 million, and embedded segment revenue fell 25% to $927 million. Had AMD issued stronger forward guidance, its data center division’s performance might have been enough to fuel today’s stock rally, but Wall Street was not happy with management’s outlook. .
Can AMD maintain its momentum?
AMD said it expects fourth-quarter sales to be between $7.2 billion and $7.8 billion. At the midpoint of the guidance range, annual sales would increase by 22% and subsequent quarterly sales would increase by 10%. Meanwhile, analysts’ average estimate is that the business is expected to post revenue of $7.55 billion for the quarter. On the margin front, management is targeting an adjusted gross margin of 54% in the fourth quarter, similar to the numbers shown in the third quarter.
AMD’s forward guidance wasn’t terrible by any stretch of the imagination, but Wall Street analysts are starting to worry that the company won’t be able to maintain its momentum in the artificial intelligence (AI) processor space into next year. With revenue guidance slightly below Wall Street’s targets and expected gross margins no higher than third-quarter levels, investors believe the company will set relatively low prices to encourage adoption of its AI chips. You may be concerned that you may be relying on Data center performance will continue to be a major driver for AMD stock, and the outlook for this area remains somewhat speculative.
Keith Noonan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.
