AMD Shares Plummet After Missing Revenue Forecast for AI Chip Boom
Advanced Micro Devices (AMD) saw a significant drop in its stock price on October 26, 2023, following its quarterly revenue forecast. The company’s shares fell by 8% during Wednesday’s trading session, grounded on the projection not meeting market expectations. Here’s a dive into the reasons behind this decline and how it reflects in the broader tech landscape.
A Rise and a Stumble in a Chip Giant
AMD has been riding the wave of increased demand for AI chips, a trend that has significantly impacted its stock prices. Since the end of 2022, AMD shares have surged by nearly 156%, making it one of the standout benefactors of the AI chip boom. However, the company’s latest financial projections indicate a slowdown in this growth trajectory, which analysts say may lead to a $20 billion loss in market value.
The Revenue Dilemma
The projections indicated a slower than expected rise in revenue, a cautious approach from AMD when compared to the high-eagle targets buyers expected. The company also set a five-year AI chip sales goal of around $5 billion for 2025. This goal, while ambitious, did not impress investors, who anticipated that the AI chip sector would drive better performance.
CEO Su’s Cautious Optimism
CEO Lisa Su warned about potential supply issues and limitations in meeting the surging demand for advanced AI processors. This hampered investors’ confidence in AMD’s future ability to deliver the expected growth, particularly in the face of the imminent supply constraints for chips expected to extend into 2024.
Analysts Assess the Impact
Analysts weighed in on the situation, expressing that the forecasted figures fell short of market sentiments. Stacy Rasgon, an analyst from Bernstein, said, “It is probably unpalatable for an ‘AI name’ to even guide inline, let alone below.” Commentators also highlighted that AMD’s narrative on AI performance does not align with industry expectations, potentially heightening investment risks.
A Sector in Flux
Other chip manufacturers like Arm and Qualcomm also experienced a similar fate, with stocks falling over 2% during the trading session. Nvidia remained less affected, down by just 0.3%, reflecting varying investor sentiments towards the AI chip market’s stability. The dependency on specialized chipmakers like TSMC for manufacturing advanced AI chips did not seem to worry investors as much for Nvidia compared to AMD.
The Street’s Expectations and Re-Orientation
Subsequent to the news, multiple analysts adjusted their stock valuations for AMD. While some analysts cut their estimates, others provided optimistic overhauls. The collective wisdom resets the median price estimate to $187.50, an uptick of almost 13% from the last closing price. However, the P/E ratio remains above 30 times, reflecting a significant price-to-earnings ratio when compared to Nvidia’s valuation.
What Lies Ahead?
AMD continues to be a leader in AI chips but faces mounting pressure to meet investor expectations. The challenge for the company is to overcome supply constraints and guide the market towards stronger AI processor forecasts. As the market realigns, AMD’s stakeholders will remain vigilant on the upcoming guidances and the roadmap towards fulfilling the broader AI chip potential.
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