AMD slips on cautious outlook; Is the pullback a buying opportunity?
2min read Advanced Micro Devices (AMD) met analysts' earnings expectations with an adjusted EPS of $0.92 and outperformed on revenue, reporting $6.82 billion compared to the estimated $6.71 billion, marking an 18% year-over-year increase. However, its guidance for Q4 revenue, projected between $7.2 billion and $7.8 billion, fell slightly below the consensus estimate of $7.55 billion, contributing to a negative market reaction after the report.
The company’s data center revenue surged by 122% year-over-year to $3.55 billion, slightly beating estimates of $3.46 billion, reflecting strong demand for AMD's EPYC and Instinct products. Client revenue, driven by Ryzen PC processors, also grew robustly, increasing 29% year-over-year to $1.88 billion, above expectations. Meanwhile, AMD's gaming segment saw a steep decline of 69% to $462 million, missing projections, as demand in the gaming console market softened.
AI continued to be a focal point, with AMD CEO Lisa Su reporting heightened adoption of the MI300X accelerators among major cloud providers and AI customers. AMD raised its full-year AI data center GPU revenue forecast from $4.5 billion to over $5 billion, signaling robust demand in the sector. AMD is also progressing on its next-generation MI350 and MI400 series, anticipated for release in 2025 and 2026, respectively, highlighting a strong pipeline for AI hardware.
AMD’s gross margin for Q3 came in at 54%, up from 51% last year, in line with expectations, signaling improved efficiency despite the high expenses associated with scaling production for AI products. The company’s capital expenditures totaled $132 million, slightly below estimates, with AMD noting that supply constraints may persist into 2025, although it is working to mitigate these through vendor partnerships.
Regarding competition with Nvidia, AMD continues to play catch-up in the AI accelerator market, where Nvidia dominates. Still, AMD has made progress, doubling its data center revenue and expanding customer reach, with companies like Meta deploying over 1.5 million EPYC CPUs globally. The company emphasized that cloud providers are increasingly interested in diversifying their supplier base, which could play to AMD’s advantage in gaining market share over time.
AMD's Q3 results also reflected its broader focus on data center growth, as evidenced by the recent acquisition of ZT Systems, which strengthens its infrastructure deployment capabilities in hyperscale environments. This acquisition, expected to close by early 2025, positions AMD for more significant AI hardware integration opportunities within large-scale data centers.
The stock, however, reacted negatively, falling over 6% in after-hours trading as investors digested the slightly weaker-than-expected guidance and cautious Q4 outlook, indicating concerns about slowing growth momentum. Despite the AI-driven performance gains, AMD's Q4 forecast suggested that some growth segments, like gaming, might continue to weigh on overall performance.
Lastly, AMD’s overall strategy remains centered on scaling its AI capabilities and expanding data center operations. CEO Lisa Su reassured investors of AMD's strong customer relationships and noted that its ongoing supply chain improvements should support growth in 2025, reinforcing the company’s commitment to capturing a more significant portion of the AI hardware market.
The question for investors is whether AMD is being overly cautious as there were some good developments on the AI front. Supply chains appear to be an issuue. The company said demand was insatiable which suggests a long runway for orders. We would watch the September 20 low and October low in that $148-150 area for support and an entry.
