AMD's AI Growth Outlook Disappoints, Options Market Reacts

Advanced Micro Devices (AMD) shares tumbled in late trading on Tuesday after the company reported fourth-quarter earnings that missed expectations for its data center business. The chipmaker's stock fell more than 8% in extended trading after the report was released, adding to a 1.1% decline this year through Tuesday's close. (Source: Bloomberg, February 5, 2025)

AMD's data center division, which generates revenue from AI chips, grew by a percentage in the "strong" double digits this year, but that wasn't enough to impress investors. The division's revenue of $3.86 billion in the fourth quarter fell short of analyst expectations of $4.09 billion. (Source: Bloomberg, February 5, 2025)

The report renewed concerns that AMD's push into AI equipment has lost some momentum, confirming the fears of analysts and investors. That sentiment was stoked in recent weeks by the arrival of a Chinese startup with a cheaper approach. (Source: Bloomberg, February 5, 2025)

AMD's total fourth-quarter revenue rose 24% to $7.66 billion, topping the $7.54 billion estimate. Earnings per share amounted to $1.09, minus certain items, in line with predictions. (Source: Bloomberg, February 5, 2025)

Looking ahead to the first quarter of 2025, AMD forecast revenue coming in between $6.8 billion and $7.4 billion. The company sees "strong double-digit percentage revenue and EPS growth year over year" for 2025, calling 2024 "a transformative year for AMD." (Source: AMD earnings call, February 5, 2025)

AMD's gaming revenue fell 59% to $563 million in the fourth quarter, hurt by the current generation of machines nearing the end of their life cycles. (Source: Bloomberg, February 5, 2025)

AMD's stock price has been volatile in recent months, with the company's shares falling nearly 30% through its recent May lows. However, Opera's execution has remained solid, and the company has increased its CapEx to invest in a "new AI data center, representing an unusual amount of CapEx." (Source: Opera's Q1 earnings release, April 2024)

AMD's AI chip revenue growth is expected to slow down in the first half of 2025, with revenue staying flat compared to the second half of 2024. This is due to a product transition, as customers await the release of the MI350 platform. (Source: AMD's earnings call, February 5, 2025)



AMD's long-term prospects in the AI market remain promising, as the company continues to invest in research and development and has a strong pipeline of new products, such as the MI350 series, which is expected to boost AI performance by 35 times. (Source: AMD's earnings call, February 5, 2025)

However, AMD faces challenges from increased competition, market saturation, and Nvidia's dominance in the AI chip market. The arrival of Chinese startup DeepSeek, which offers competitive AI models at a fraction of the cost of larger US companies, has raised concerns about the necessity of investing in new hardware. (Source: Bloomberg, February 5, 2025)

AMD's stock price performance and AI chip revenue growth will be closely watched by investors in the coming months. As the company navigates the challenges in the AI market and works to regain market share and momentum, investors will be looking for signs of improvement in AMD's financial performance and AI growth prospects.