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AMD Stock Plummets Despite Beating Revenue Expectations: Concerns Over Data Center Performance and AI Growth

Emilia Wright | February 5, 2025

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AMD Faces Stock Pressure Despite Revenue Beat

Advanced Micro Devices Inc. (AMD) managed to surpass revenue expectations in its most recent quarterly report, but the company’s stock took a hit in the after-hours trading, dropping approximately 9%. The mixed results, particularly within AMD’s data center segment, have left investors concerned about the company’s future growth trajectory.

Revenue Highlights

AMD reported an overall revenue of $7.7 billion for the quarter, exceeding the consensus estimate of $7.5 billion. Notably, the company’s client business, which includes personal computers, saw a significant uptick of 58%, amounting to $2.3 billion, compared to the expected $1.9 billion. These results reflect AMD’s resilience and strength in the PC market amid varying conditions.

However, the star performer across AMD’s segments was overshadowed by the underperformance of its data center business, which includes AI accelerators. Although the data center segment rose by an impressive 69% to a record $3.9 billion, it fell short of analyst expectations set at $4.1 billion according to FactSet. This shortfall has sparked concern within the investment community, as analysts had been monitoring AMD’s trajectory in this critical segment as AI and cloud computing continue to gain traction.

Analyst Revisions and Concerns

Prior to AMD’s earnings report, Wolfe Research analyst Chris Caso had already reduced his expectations for the company’s AI revenue. Previously forecasting at least $10 billion for the AI sector, he revised it down to approximately $7 billion. This downward adjustment reflects broader concerns over AMD’s competitiveness in the growing AI market, where it faces stiff competition from other players in the industry.

Moreover, AMD did not provide a forecast for AI revenue in 2025. During the earnings call, CEO Lisa Su expressed optimism about the company’s long-term growth trajectory, stating that AMD is poised to ramp up its data-center AI franchise revenue from over $5 billion in 2024 to potentially tens of billions in subsequent years. This ambitious outlook, however, leaves many analysts skeptical, particularly in light of recent performance metrics.

Strategic Developments

In addition to discussing financial figures, CEO Lisa Su highlighted AMD’s strategic investments aimed at enhancing its position in the AI sector. The firm is planning to accelerate production shipments for its upcoming MI350 chip, the next generation of AMD’s AI offerings. Management previously cited the second half of the year as the target period for these shipments but has now indicated an adjustment to aim for mid-year releases. This shift is expected to improve AMD’s competitive landscape.

Su also touted the partnerships AMD is forming, including collaborations with DeepSeek, a Chinese AI startup, and Stargate, a joint venture in the United States focused on AI infrastructure. These initiatives underscore AMD’s commitment to advancing its technological capabilities and seizing unprecedented growth opportunities across various business segments.

Market Reactions and Future Outlook

The market’s reaction post-earnings highlights the dainty balance AMD strives to maintain between its many verticals. While the company has celebrated the growth of its client segment, the pronounced decline in its gaming revenue—down 59% to $563 million—and a revenue drop in the embedded unit, which faced a 13% decrease to $923 million, weakens AMD’s comprehensive narrative of growth. These drops imply sustained pressures in the gaming market, affecting AMD’s overall perceived robustness.

Going forward, AMD is projecting a revenue forecast of about $7.1 billion for the upcoming quarter, which aligns closely with the FactSet consensus of $7 billion. This cautious outlook indicates a need for continued vigilance and strategic action to sustain momentum in a highly competitive market.

Conclusion

In conclusion, while AMD has made strides in several areas, particularly within its client business, the data center segment’s performance poses a challenge for the company’s stock valuation and investor confidence. The growing significance of AI in the tech landscape makes AMD’s ability to innovate and scale its offerings in this domain crucial to future success. As AMD navigates these challenges, close attention will be needed on how it addresses the inconsistencies across its varied business lines.