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AMD shares sank by 7% in after market after the firm's fourth quarter guidance added to investor fears of tight supply constraining semiconductor designers' ability to meet lofty profit and revenue expectations. The firm earned $6.82 billion in revenue and $0.92 in adjusted EPS for its third quarter, both of which beat analyst estimates. Analysts had penned AMD's revenue and earnings at $6.7 billion and $0.70, respectively making the third quarter results a strong beat. However, AMD's Q4 revenue guidance of $7.2 billion to $7.8 billion, with a midpoint of $7.5 billion, missed analyst estimates of $7.54 billion.
AMD Data Center Revenue Continues To Soar But Tepid Guidance Hurts Stock
While AMD's fourth quarter guidance fell short of analyst estimates, the firm's data center business continued to perform as it benefited from the growing rise in high performance computing. During Q3, the firm raked in $3.5 billion in revenue, which marked a 122% annual growth. At the same time, AMD's data center operating margin, which measures the profit that the division earns after direct and indirect costs are accounted, for sat at 29% for a ten percentage point annual growth from the year ago quarter's 19%.
However, even though AMD's Data Center revenue grew by nearly $2 billion, the gains were overshadowed by a sharp drop in Gaming revenue. The firm's Gaming division measures AMD's GPU and gaming GPU sales, and during Q3, Gaming revenue sat at $462 million for a stunning $1 billion drop over last year's $1.5 billion. In its investor presentation, AMD attributed the drop to "lower semi-custom revenue," implying that weak console sales were to blame for some of its woes.
Despite the tepid guidance, a key metric that Wall Street will be on the watch out for throughout this earnings season, AMD CEO Lisa Su assured investors that the demand for her firm's products for data centers and other associated workloads was strong. AMD's Client segment, which measures the performance of its consumer CPUs, also did well in the quarter as it grew revenue by 29% annually to $1.9 billion. The Client segment includes products that AMD aims to sell for consumer AI use cases, particularly through laptops.
AMD, along with larger GPU rival NVIDIA, has been one of the firms that benefit from AI semiconductors. However, unlike NVIDIA, its shares have not posted triple digit percentage growth in 2024 primarily due to smaller scale and the industry's preference of NVIDIA GPUs for AI workloads and computations.
However, the weaker than expected guidance which led to AMD's 7% share price drop in aftermarket trading was restricted only to the firm's shares. NVIDIA remained flat during the day and in the aftermarket, with the American Depository Receipts (ADRs) of TSMC and shares of beleaguered chip giant Intel Corporation following similar trends.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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