Advanced Micro Devices shares fell sharply in early Wednesday trading after the chipmaker issued a muted near-term outlook for sales of its newly released AI chip, which clouded a stronger-than-expected first quarter earnings report.
AMD (AMD) , which is attempting to carve into market leader Nvidia's (NVDA) 80% share of the market for AI focused data center chips, has seen demand for some of its traditional server chips wane amid the rush to secure higher-end processors.
That pushed revenue for two of its three main reporting units – gaming and client – sharply lower over the three months ended in March and capped the group's overall top line at $5.47 billion, a tally that narrowly topped Wall Street forecasts.
The group's data center segment, however, saw sales rise 80% to $2.3 billion, powered in part by the launch of its new MI300X, a graphics-processing unit designed to support generative artificial intelligence technologies.
Tech analysts say AMD's MI300X carries more memory with speed than Nvidia's top-selling H100.
AMD CEO Lisa Su said the new chip, which could challenge Nvidia's market dominance, is likely to generate sales of around $4 billion this year, a modest $500 billion increase from its mid-January forecast.
AMD CEO Su: 'We're not supply-capped'
"Longer term, we are increasingly working closer with our cloud and enterprise customers as we expand and accelerate our AI hardware and software road maps and grow our data-center GPU footprint," Su told investors on a conference call on April 30.
Su also noted that the $4 billion forecast is "not supply-capped" but more "back-half-weighted" in terms of the timing of client demand.
"We've said before that our goal is to ensure that we have supply that exceeds the current guidance, and that is true. ... we have supply visibility significantly beyond that," she said.
Related: Nvidia set to capture billions as big tech boosts AI spending
KeyBanc Capital Markets analyst John Vinh lowered his AMD price target by $40 to $230 a share following the April 30 earnings update. He expects investors to view the $4 billion outlook as "disappointing" and likely reflecting reports of order cuts from Microsoft (MSFT) and performance issues tied to a high bandwidth memory chip, the HBM3, which is a key AI processing component.
"However, we still believe the GPU outlook is likely to be conservative and that there is still greater demand than what AMD can supply this year," said Vinh, who carries an overweight rating on the stock.
AI growth story remains
Cantor Fitzgerald analyst C.J. Muse agrees but noted that "a capped near-term fundamental environment will likely weigh on the shares."
"That said, the 2025 and beyond story remains intact where MI300 GPU remains a robust story as the company attacks the $400 billion 2027 AI opportunity as the #2 merchant AI supplier behind Nvidia," said Muse. He lowered his AMD price target by $20 to $170 a share and affirmed his overweight rating.
That theme was repeated across a host of Wall Street analyst notes on AMD, published after the first-quarter earnings update, with UBS describing the muted sales outlook as "noise."
UBS lowered its AMD price target by $5 to $200 a share, according to TheFly, but sees the overnight pullback as a buying opportunity.
More AI Stocks:
- Analyst unveils eye-popping Palantir stock price target after Oracle deal
- Veteran analyst delivers blunt warning about Nvidia's stock
- Analysts revamp Microsoft stock price target amid OpenAI reports
AMD said its non-GAAP earnings for the three months ended in March came in at 62 cents a share, a 3.3% increase from the year-earlier period and narrowly topping Wall Street forecasts.
Group revenue, AMD said, rose 2% to $5.47 billion, just ahead of analysts' consensus forecast of a $5.46 billion tally.
Related: Analysts reboot AMD stock price target ahead of earnings
Looking into the current quarter, AMD sees revenue in the region of $5.7 billion, with a $400 million margin for error, and an overall gross-profit margin of around 53%, just ahead of Wall Street estimates.
"Looking further ahead, AI represents an unprecedented opportunity for AMD," Su told investors last night.
"While there has been significant growth in AI infrastructure buildouts, we are still in the very early stages of what we believe is going to be a period of sustained growth driven by an insatiable demand for both high-performance AI and general-purpose compute."
AMD shares were marked 6.8% lower in early Wednesday trading to change hands at $147.56 each, a move that would trim the stock's year-to-date gain to around 6.5%.
Note: an earlier version of this story incorrectly linked the HBM3 chip to Micron Technology. Micron manufactures a next-generation HBM3E chip.
Related: Veteran fund manager picks favorite stocks for 2024
