AMD Stock Plunges Post Q3 Earnings Report

Initial Reaction to AMD Earnings Call

Shares of Advanced Micro Devices (AMD) (NASDAQ: AMD) plummeted 7.6% in after-hours trading after its third-quarter 2024 report was released. The stock’s decline was primarily attributed to a lower-than-expected fourth-quarter revenue guidance. Despite exceeding Wall Street’s expectations on revenue, the adjusted earnings were just slightly more significant than initially projected.

Positive Elements in the Report

On a positive note, management at AMD announced that their forecast for 2024 data center artificial intelligence (AI)-enabling graphics processing unit (GPU) chip revenue had been boosted. They now anticipate this metric to exceed $5 billion, up from their mid-July estimate of more than $4.5 billion.

Third-Quarter Performance

Revenue and GAAP Metrics

• Revenue: AMD reported $6.82 billion in Q3 2024, up from $5.80 billion a year ago, an increase of 18% year over year (YOY).
• GAAP Operating Income: The company saw a GAAP operating income of $724 million, a remarkable 223% increase.
• GAAP Net Income: Net income swelled to $771 million, a whopping 158% YOY gain, from $299 million a year back.
• Revenue and Margin Guidance:
  • The company guided for $7.5 billion in Q4 revenue, equating to a 22% YOY increase and 10% sequential growth.
  • Adjusted gross margin for the quarter was set at 54%, aligning with the previous guidance issued.

Key Takeaways and Market Implications

Financial Performance

AMD delivered outstanding results for the third quarter, with adjusted EPS growing notably stronger than revenue, a positive sign of increasing profitability. Despite the Q3 performance, the sell-off in after-hours trading indicated investors were underwhelmed by the guidance for the fourth quarter.

Market Expectations

Given the recent strong performance of AMD stock, priced at a premium, market returns were inevitable, even in the face of the slight drop in Q4 revenue guidance. The expectation set high by recent returns made any deviation even slightly so, leading to a sell-off.

Conclusion

AMD’s 2024 financial outlook and growth expectations are promising, especially with the increased focus on 2024 data center AI GPU chip revenue. While the stock experienced a short-term dip, investors should stay optimistic about the company’s growth prospects in the AI and semiconductor market.