AMD shares experienced a notable decline in early Wednesday trading following the company’s issuance of a relatively subdued near-term sales outlook for its recently launched AI chip, despite an otherwise robust first-quarter earnings report.
AMD, in its bid to gain traction against market leader Nvidia’s dominant 80% share of the AI-focused data center chip market, has encountered a slowdown in demand for some of its conventional server chips amidst the rush to acquire higher-end processors.
This decline in demand has led to a significant drop in revenue for two of AMD’s three main reporting units – gaming and client – over the three-month period ending in March. However, revenue narrowly exceeded Wall Street forecasts, reaching $5.47 billion.
On the other hand, the company’s data center segment experienced an impressive 80% sales increase to $2.3 billion, driven partly by the introduction of its new MI300X, a graphics processing unit tailored to support generative artificial intelligence technologies.
According to tech analysts, AMD’s MI300X boasts superior memory capacity and speed compared to Nvidia’s leading H100.
CEO Lisa Su expressed optimism regarding the group’s AI-related sales, indicating that they are not supply-constrained and are expected to gain momentum in the latter half of the year.
Su also disclosed that the projected sales for the new chip, which poses a challenge to Nvidia’s market dominance, are estimated to reach around $4 billion this year. This figure represents a modest $500 million increase from the company’s mid-January forecast.
“Longer term, we are increasingly working closer with our cloud and enterprise customers as we expand and accelerate our AI hardware and software roadmaps and grow our data-center GPU footprint,” Su stated during a conference call with investors on April 30.
She emphasized that the $4 billion sales forecast is not supply-constrained and is more weighted toward the latter half of the year in terms of client demand timing.
Despite the positive outlook, KeyBanc Capital Markets analyst John Vinh reduced his price target for AMD by $40 to $230 per share following the earnings update.
He anticipates that investors may perceive the $4 billion outlook as disappointing, particularly amid reports of order reductions from Microsoft and performance concerns related to Micron’s new high bandwidth memory chip, a crucial AI processing component.
“However, we still believe the GPU outlook is likely to be conservative and that there is still greater demand than what AMD can supply this year,” Vinh stated, maintaining an overweight rating on the stock.
