AMD Shares Plummet 10% on Data Center Revenue Disappointment

AMD's shares took a nosedive on Wednesday, dropping more than 10% after the chipmaker reported fourth-quarter earnings that fell short of Wall Street's expectations for its crucial data center business. The company reported data center sales of $3.86 billion, reflecting a 69% year-over-year increase but missing the $4.14 billion in sales expected by analysts polled by LSEG.

AMD's data center segment, which includes its EPYC server CPUs and Instinct AI accelerators, has been a key driver of the company's growth in recent years. However, the company's gaming and embedded segments continued to struggle, with gaming revenue tumbling 59% year over year to $563 million and embedded revenue declining 13% to $923 million.

Despite the disappointing data center sales, AMD's overall revenue climbed 24% year over year to a record $7.66 billion, driven by strong demand for its client and data center segments. Adjusted earnings per share (EPS) of $1.09 also beat expectations, but the company's shares fell more than 8% in extended trading Tuesday following the results.

AMD's CEO, Lisa Su, acknowledged the company's data center sales shortfall but expressed confidence in the company's long-term growth prospects. "We believe this places AMD on a steep long-term growth trajectory, led by the rapid scaling of our data center AI franchise from more than $5 billion of revenue in 2024 to tens of billions of dollars of annual revenue over the coming years," Su said on the earnings call with analysts.

Investors may be concerned about AMD's ability to compete with NVIDIA in the AI chip market, as the company's data center sales missed expectations. However, AMD's strong performance in other segments, such as client computing, suggests that the company has the potential to balance its focus on growth areas while addressing the data center shortfall.

In conclusion, AMD's shares dropped 10% on disappointing data center revenue, but the company's overall strong performance in other segments and its CEO's confidence in the company's long-term growth prospects may help to mitigate investor concerns. As AMD continues to innovate and invest in its data center segment, it has the potential to better compete with NVIDIA and maintain its strong performance in the market.