AMD stock slumps over 9% as fourth-quarter guidance trails analysts' expectations

Investing.com -- Advanced Micro Devices (NASDAQ:AMD ) unveiled guidance for current-quarter revenue and artificial intelligence chip sales that disappointed investors, sending shares down by nearly 10% in Wednesday trading.  

Due to soaring AI chip demand from a host of large tech firms like software giant Microsoft (NASDAQ:MSFT ) and Facebook-owner Meta Platforms (NASDAQ:META ), AMD has been struggling to provide the necessary supply of processors. In a call with analysts, Chief Executive Lisa Su flagged that supplies of AI chips would be restrained heading into the upcoming year.

"[G]oing into the next few quarters going into 2025, I think we expect that the environment will continue to be tight, but we've also planned for significant growth going into 2025," Su said.

For the fourth quarter, AMD's revenue guidance of $7.5 billion, plus or minus $300 million, was slightly under analysts' consensus forecasts of $7.55 billion at the midpoint.

AMD also increased its projections for sales of its key AI chips for next year to $5 billion from its prior estimate of $4.5 billion, although investors were underwhelmed by the guidance.

In a note to clients, analysts at Morgan Stanley said AMD's returns were "essentially in line" with consensus forecasts, adding that they were "somewhat surprised" by the sell-off in the stock. 

The chipmaker -- and rival to AI-darling Nvidia (NASDAQ:NVDA ) -- posted adjusted earnings per share of $0.92 in the third quarter, in line with analyst projections. Group-wide revenue also rose by 22% versus the year-ago period to $6.82 billion, surpassing the consensus estimate of $6.71 billion. 

The company's data center segment was a standout performer, with revenue more than doubling to $3.5 billion, while its client business showed strong growth as well. But this strength was partly offset by sales at its gaming unit, which declined 69% to $462 million.

"[W]e still see 2024-25 as investment years for the AI opportunity, and think some revenue [and] earnings expectations are still too high," the Morgan Stanley analysts led by Joseph Moore wrote.

Separately, Bank of America analysts said AMD's disappointing print is likely to moderate consensus forecasts for the chipmaker's earnings estimates for 2025 and 2026. 

But while this is seen as a short-term negative, analysts believe "it finally provides AMD with much-needed reset heading into CY25E."

BofA reiterated a Buy rating on the stock with a price target of $180. 

(Senad Karaahmetovic contributed reporting.)

Source: Investing.com