AMD Stock Drops 5% Following Q4 Earnings: Data Center Revenue Misses Expectations but Top & Bottom Line Beats Estimates

The information provided herein should not be construed as investment advice. The author holds no positions in any of the referenced stocks.

Advanced Micro Devices, Inc.(AMD) recently reported its quarterly earnings, showcasing results that exceeded analyst expectations for most metrics but struggled in the data center segment. This downturn in the data center business has raised concerns regarding AMD’s capacity to compete with NVIDIA in the burgeoning AI market. Analysts had forecasted that AMD would generate approximately $4.14 billion from data center revenues, but the company only achieved $3.9 billion, resulting in a significant shortfall.

Strong Performance in Client Computing Despite Data Center Challenges

Prior to the earnings announcement, FactSet analysts anticipated a revenue total of $7.53 billion for AMD, alongside adjusted earnings per share (EPS) of $1.08. AMD’s actual performance exceeded these projections, generating $7.66 billion in revenue and an adjusted EPS of $1.09, thus surpassing both the top and bottom-line estimates comfortably.

A more granular analysis of AMD’s revenue distribution reveals a complex landscape. The data center revenue of $3.9 billion fell short of expectations and marked a notable challenge for AMD, reflecting ongoing difficulties in a segment that has been its cornerstone. In contrast, AMD’s client computing division, which encompasses its personal computing processors, reported revenue of $2.3 billion, significantly outperforming forecasts of $1.93 billion.

AMD Q4 Earnings Data Center Performance — AMD’s Q4 Data Center Performance Breakdown. Image: AMD

Before the earnings release, industry analysts had warned of a potential downturn in the consumer PC market for AMD this year. In the gaming segment, the company reported revenue of $563 million, exceeding expectations of $498 million, but this figure still represents a dramatic 59% decline year-over-year, primarily due to lower sales of semi-custom chips, which are crucial for gaming consoles.

Additionally, AMD’s embedded segment, a key aspect of its Xilinx acquisition, posted $923 million in revenue, which did not meet analyst expectations of $960 million. The below-par performance in the embedded and data center sectors suggests that AMD is encountering challenges in effectively accessing the enterprise computing market.

Both the data center and embedded segments are aligned with non-AI IT spending, which has remained subdued despite a resurgence in orders for data center products from various semiconductor firms. AMD attributed the decline in embedded revenue to “mixed end market demand.”

Looking towards the first quarter, AMD provided guidance of $7.1 billion in revenue, slightly above the analyst consensus of $7 billion. However, following the earnings report, AMD’s stock fell by as much as 5.4% in aftermarket trading, likely as a response to the weaker data center performance. The data center has historically been AMD’s largest business, and ongoing discussions about the low power and performance requirements for training AI systems continue to fuel speculation on AMD’s future positioning.

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