Story Stocks^®

Advanced Micro Devices (AMD -9%) drops to one-year lows today despite exceeding Q4 earnings and sales estimates and issuing Q1 revenue guidance consistent with analyst estimates. Today's sell-off was triggered by a concerning miss on Data Center segment revenue in the quarter. The chip designer, competing against NVIDIA (NVDA) and Intel (INTC) in the AI race, grew its Data Center revs by 69% yr/yr to $3.9 bln. While this was a record quarter for AMD, it fell short of street estimates by a meaningful margin. While consensus called for a slowdown from the +122% yr/yr growth posted last quarter, the market was surprised to see such a considerable deceleration in Q4.

• AMD noted that 2024 still marked a major infection point for its server business as share gains accelerated, exiting 2024 with well over 50% share at the majority of its largest hyperscale customers. AMD is likely aggressively capturing market share from INTC. In Q4, INTC's Data Center and AI (DCAI) segment revenue declined by 3% yr/yr, weakening from a 9% increase in Q3.
• On the GPU side, AMD's MI300X production deployments expanded with its largest cloud partners in Q4. For instance, Meta Platforms (META) exclusively used MI300X to serve its Llama 405B model. Production of AMD's upcoming successor platforms is progressing nicely. The company noted that it began volume production of MI325X in Q4. Also, AMD is seeing strong customer interest in its MI350 series and is on track to accelerate production shipments by mid-year. Meanwhile, the development of its MI400 series is progressing well.
• Even though Data Center revenue did not live up to expectations, AMD posted accelerating overall revenue growth of 24.2% yr/yr to $7.66 bln versus a +17.6% jump last quarter. Meanwhile, adjusted EPS of $1.09 represented a slim beat, a return to delivering modest upside following last quarter's in-line earnings performance.
• Client segment revenue supported AMD's top-line beat, expanding by 58% yr/yr to $2.3 bln. Like its Data Center segment, AMD is enjoying market share capture in this segment, given that INTC's Client segment endured a 9% drop in Q4. AMD mentioned that it had record desktop channel sell-out in Q4, reflecting healthy demand for its Ryzen processor.
• On the flip side, Gaming and Embedded posted revenue declines of 59% and 13% yr/yr, respectively. AMD expects declines to persist in Q1, dragging down its revenue forecast slightly, predicting $6.8-7.4 bln, translating to a 30% improvement yr/yr at the midpoint.

With no signs of AI spending slowing down, highlighted by AMD supplier Taiwan Semi's (TSM) robust Q4 numbers last month, with the company predicting AI-related revenue to double yr/yr in 2025 following a more than tripling in 2024, investors are expressing frustration with AMD's Data Center performance in the quarter. The segment has been a silver lining among the dull performances from AMD's other divisions, including Gaming and Embedded, which continued to languish in Q4. There are still encouraging developments on the horizon, particularly surrounding upbeat interest for AMD's upcoming AI platforms, which will likely cost far less than NVDA's flagship Blackwell GPU platform, which could begin to reignite investor interest over the coming months.