AMD Stock Drops as Its Outlook Underwhelms Investors

AMD, the main contender to Nvidia in the artificial intelligence chip market, failed to impress investors with its revenue forecast after an eye-popping rally sent expectations soaring.

Fourth-quarter revenue will be roughly $9.6 billion, the company said in a statement Tuesday. Though analysts had estimated $9.2 billion on average, some projections ranged as high as $9.9 billion.

Investors have bet heavily on AMD following blockbuster agreements with OpenAI and Oracle Corp., which plan to use the company’s chips in their build-out of artificial intelligence computing. The hope is that AMD can finally crack Nvidia’s dominance in the AI processor market.

But Tuesday’s outlook signals that AMD’s payoff may come slower than some had anticipated.

The shares fell 3.9% in premarket trading on Wednesday following the announcement.

Third-quarter sales rose 36% to $9.25 billion, beating a $8.7 billion average estimate. Profit was $1.20 a share, minus certain items. Analysts projected $1.17 on average, according to data compiled by Bloomberg.

The data center business, the main beneficiary of AI spending, rose 22% to $4.3 billion in the period. Analysts had predicted $4.14 billion on average. Personal computer-related sales rose 73% to $4 billion. The average prediction was $2.6 billion.

In the statement, Chief Executive Officer Lisa Su said the numbers marked “a clear step up in our growth trajectory” as AMD looks to AI to drive revenue and earnings growth.

She told analysts on a conference call that the AI business will generate “tens of billions” of dollars in annual revenue by 2027. The company’s PC chip business, meanwhile, should grow faster than the overall market, she said.

During the call, analysts pressed Su on when more growth would kick in, particularly for AI chips. At the moment, the company’s AI-fueled business is actually expanding more slowly than its traditional PC chip business.

In response, Su reiterated a projection that the market for AI processors would generate more than $500 billion a year. The company will give more details on its outlook at an investor meeting next week, she said.

“Whereas $500 billion sounded like a lot when we first talked about it, we think there is a larger opportunity for us over the next few years,” she said. “That’s pretty exciting.”