AMD’s Muted AI Sales Forecast Fails To Unleash Bulls 

Advanced Micro Devices, the second-largest maker of computer processors, disappointed investors with its sales outlook for processors used in data centers. The company also reported weak demand for chips used in gaming hardware, which could serve as a warning for Nvidia bulls as they await the company’s earnings report in three weeks.

On Tuesday, AMD reported first quarter earnings that were in line with Wall Street’s expectations. However, this wasn’t enough to overly excite bulls as shares traded down 6.7% in the early cash session. 

First-quarter earnings, excluding certain items, were 62 cents per share on revenue of $5.47 billion. This report exceeded the estimated profit of 61 cents per share and projected revenue of $5.45 billion.

AMD’s computer chip division had around $1.4 billion in revenue, compared with a $1.29 billion estimate. Datacenter chip sales were $2.3 billion, which is in line with Wall Street’s expectations. Sales of gaming-related chips reached $922 million, falling short of analysts’ expectations of $965.5 million.

The company stated that its second-quarter revenue forecast is around $5.7 billion, plus or minus $300 million, compared with the average estimate of $5.72 billion. 

Although earnings met expectations, the updated guidance of $4 billion for data center chips was considered conservative. Despite being an improvement over the previous $3.5 billion estimate, some Wall Street analysts forecasted a higher figure. 

“We are firm believers in AMD’s revitalized product roadmap strategy, and product traction is compelling,” KeyBanc strategists led by John Vinh wrote in a note. 

Vinh continued, “However, expectations for share gains and growth are high. We’re concerned that any moderate downtick to expectations could add substantial risk to the stock based on valuation levels well above peers.”

Oppenheimer analysts led by Rick Schafer noted, “We remain on the sidelines for now as AMD’s emergent AI growth story is diluted by sluggish” sales in other areas. Perhaps this is an ominous sign that the parabolic trend of the AI bubble is unsustainable. 

AMD and Nvidia are rivals in the PC GPU and AI data center markets. Nvidia bulls and bears are awaiting the company’s May 22 earnings report for hints about the state of the AI industry. 

Qualcomm will be reporting earnings on Wednesday afternoon. Then Arm Holdings on May 8. 

Bloomberg data shows the Philadelphia semiconductor index is priced around 26 times projected profits, down from a March peak of 30 times profits. However, the index trades well above the 10-year average of 17 times. 

Chipmaker valuations are being driven by multiple years of future earnings growth fueled by the AI bubble. Perhaps the collapse of ASML’s order book is an ominous sign of what’s to come (read here).