• AMD reported better-than-expected financial results for its fourth quarter.
• Q1 revenue forecast is lower than expected despite AI chips boom.

Advanced Micro Devices Inc. (AMD) reported fourth quarter adjusted earnings per share (EPS) of $0.77, matching analysts’ estimates. The company reported a strong quarter with $6.2 billion in revenue, exceeding consensus estimate of $6.13 billion. Earnings rose 12% on a year-over-year basis, while revenue climbed 10%.

Guidance disappointed as AMD provided a weak revenue forecast for its March quarter but raised its sales forecast of artificial intelligence (AI) chips this year to over 3.5 billion, up from a previous forecast of $2 billion. That figure came below previous analysts’ projections for the AI segment between $4 billion and $8 billion, and disappointed investors as the stock valuation is pegged to those figures.

Source: Investor Relations, Advanced Micro Devices, Inc.

AMD CEO Lisa Su said that the company could sell more than the $3.5 billion worth of AI chips that it is now forecasting once more capacity comes online in the second half of the year. The new MI300X – a graphics-processing unit designed to support generative artificial intelligence technologies is a new launch against NVIDIA’s ability to meet the global surge in demand.

The chip maker expects its first-quarter revenue to be about $5.4 billion, plus minus $300 million. The guidance is up from $5.35 billion during the same period last year but is well below the $5.77 billion consensus estimates. Weakness in videogaming chips, PC, servers, and programmable processors, which are core markets weighed on the forecast. The weaker guidance renewed concerns that customers are holding off on purchases in AMD’s core markets. The company did not provide earnings per share guidance.

AMD expects sales in its data canter segment to be flat sequentially in the first quarter and sees a strong ramp up of its data centre graphics processing units (GPUs) offsetting a seasonal decline in server sales. The company also predicts sequential sales declines in its client, embedded and gaming segments, and sees revenue from semi-custom chips declining by a double-digit percentage.

Overall, AMD delivered record data centre segment annual revenue and strong top-line and bottom-line growth in the last quarter of 2023, which was driven by the ramp of Instinct AI accelerators and strong demand for Epyc server CPUs .

Source: TradingView

Advanced Micro Devices share price has surged 117% in 2023 and is up 19% YTD; however, the price fell more than 6% after the results and we see a good probability of the decline extending further in the short-term. The company had little margin for error amid lofty expectations and investors were disappointed with the forward guidance provided for the current quarter.

Nonetheless, we see the current pull back as temporary, and we consider the short-term weakness as a good entry point. The price structure and the momentum conditions remain constructive at this juncture in time, and we see levels in the range between $190.00 – $200.00 as achievable over the long-term.

Overall, the company is making the best it can of a challenging market amid mixed demand environment and we are encouraged by the ongoing customer traction in the data centre GPU business.

Active traders looking to gain exposure the Advanced Micro Devices share price may consider Leverage Shares +3x Long AMD and -1x Short AMD ETPs.

Footnotes:

1. Source: Investor Relations, Advanced Micro Devices, Inc.