Advanced Micro Devices (NASDAQ: AMD) has faced a significant setback in 2024 after experiencing a robust rally fueled by artificial intelligence (AI) initiatives. Since reaching a 52-week high in March, AMD’s shares have plummeted by 29%. The company’s latest financial results, released on April 30, have failed to alleviate concerns among investors and reverse this downward trend.
The first-quarter 2024 results for AMD disappointed investors, prompting a sell-off. Despite modest growth, the company’s revenue for the quarter stood at $5.47 billion, marking a mere 2% increase compared to the same period last year. Similarly, non-GAAP earnings saw a tepid 3% year-over-year increase to $0.62 per share. Analysts had anticipated earnings of $0.62 per share on revenue of $5.48 billion, indicating that AMD barely met earnings expectations and fell short of revenue forecasts.
Looking forward, AMD’s guidance for the second quarter didn’t inspire much confidence either. The company expects revenue to reach $5.7 billion, representing a modest year-over-year increase of just 6%. While this forecast suggests a slight acceleration in growth, Wall Street had expected slightly higher revenue of $5.73 billion. Given AMD’s lofty valuation of 218 times trailing earnings, investors were hoping for stronger growth to justify the stock’s premium valuation.
One of the significant challenges for AMD lies in its gaming and embedded segments. Gaming revenue plummeted by 48% year over year to $922 million due to weak demand for semi-custom chips used in gaming consoles and sluggish sales of gaming graphics cards. Similarly, revenue from the embedded segment declined by 46% to $846 million, attributed to customers depleting existing inventory. However, AMD remains optimistic about future prospects in these segments, citing robust design wins and new product offerings tailored for AI workloads.
Despite challenges in certain segments, AMD reported stellar performance in its data center and client businesses. Data center revenue soared by 80% year over year to a record $2.3 billion, driven by robust demand for AI GPUs and server processors. The company’s client business also witnessed an impressive 85% revenue increase to $1.4 billion, fueled by recovering demand for PC processors and the growing adoption of AI-enabled PCs.
Looking ahead, AMD’s growth prospects remain promising, particularly in its data center and client businesses. With AI-related catalysts driving growth in these segments, AMD is poised for accelerated revenue growth in the coming years. Analysts forecast a 13% increase in revenue this year, with earnings projected to grow at an annual rate of 25% over the next five years. This positive outlook, coupled with AMD’s potential to capitalize on the AI PC boom, positions the company as a long-term growth opportunity.
In summary, while AMD’s recent financial results fell short of expectations and triggered a sell-off, the company’s robust performance in key segments and promising growth prospects underscore its potential as a winning investment in the long run. Investors may consider AMD’s current pullback as a buying opportunity, especially given its strong position in the AI-driven market landscape.