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Wednesday, November 1

AMD Growth Stalls

The AI boom is already running out of steam

Despite solid growth in Q3, AMD simply isn't gaining ground on Nvidia fast enough to satisfy the market. Even with compelling 2024 projections for their data center products, a weak outlook for Q4 for the stock is calling the whole AI boom into question. 

AMD beat expectations by generating a $0.78 EPS from $5.8 billion in revenue, but their Q4 guidance came in just a few hundred million dollars short of what The Street wanted to see. With this chip market becoming increasingly high-stakes, investors want to see projections that beat expectations or nothing at all. Overall revenue grew 4% YoY, primarily powered by a massive 42% boost in AMD's PC business that offset a decline in their gaming vertical. 

The story investors care about here is AMD's data center business. That revenue was flat in Q3 and projected a little lower in Q4. However, AMD is quickly ramping production of Data Center GPU products that can at least occupy the same niche as Nvidia's AI chips. The company is expecting those products to generate $400 million in this quarter, but get all the way to $2 billion throughout 2024. That outlook sounds great, but it might not be enough to really entice the market here. 

AMD is caught in the middle of a bunch of narratives here. First of all, they are seen primarily as a second-place pretender to Nvidia's dominance as they didn't prepare their data center vertical as well as Nvidia did. AMD is also an important forward-looking indicator for the chip business in general, and their Q4 guidance is adding to a building narrative that the whole economy is going to see a pretty broad slowdown from now until January. While a lot of companies have beaten expectations for Q3, a growing cohort has also reduced their guidance for Q4, adding to speculation that this is the moment that restrictive Fed policy is finally going to bite. While AMD's 2024 projections sound great, that doesn't seem to be enough to push investors out of their short-term fear for the market. AMD stock slumped 2% in early trading. 

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