AMD's Q4 guidance misses expectations, cooling AI chip frenzy

AMD (AMD.US) reported its third-quarter earnings after the market closed on Tuesday. The data showed that the company's Q3 revenue grew 18% year-on-year to $6.82bn, topping the market's expectation of $6.71bn; its adjusted EPS was $0.92, in line with the market's expectation. By business, AMD's Q3 revenue from its data center segment was $3.5bn, more than doubled year-on-year, slightly above the market's expectation. The revenue from its PC chips was $1.88bn, up 29% year-on-year. The gaming revenue was $462mn, down 69% year-on-year, below the market's expectation. Looking ahead, the company expects its Q4 revenue to be about $7.5bn, in line with the average analyst's expectation of $7.55bn. Although the company currently expects its sales of so-called AI accelerators this year to exceed $5bn, higher than its previous forecast of $4.5bn, some analysts and investors have been expecting even higher sales. Its forecasted Q4 adjusted gross margin is also slightly below the market's expectation. AMD is chasing Nvidia in the lucrative market for AI computing chips. The company currently generates billions of dollars in revenue from such products, which has grown rapidly from a year ago, but still far below Nvidia's hundreds of billions of dollars in revenue. AMD's newly launched MI300 accelerator products have become one of its biggest sales engines, but supply shortages have hindered growth. Like most companies in the industry, AMD no longer has its own factories and has chosen to outsource production to TSMC. Investors view AMD's performance as an indicator of overall demand for AI-related hardware. Amazon's AWS and Microsoft and other companies have invested heavily in this new computing infrastructure, disrupting the entire industry. Investors are concerned that AI services have yet to bring huge profits, which may make it harder for companies to continue to prove that spending on chips is justified. AMD is Nvidia's biggest competitor in the field of AI accelerators, and it is also competing with Nvidia in the graphics chips used by PC gamers. AMD is also fiercely competing with Intel in the fields of PC and server processors. AMD provides custom processors for Microsoft and Sony Group's gaming consoles. Its gaming segment's sales have been weak due to the current generation of gaming consoles approaching the end of their life cycle. As of the time of writing, AMD's after-hours shares fell 7.44% to $153.88.