AMD met estimates, but investors wanted more AI growth.
Shares of Advanced Micro Devices (AMD -8.91%) were heading lower today after the chipmaker posted disappointing results and guidance in its first-quarter earnings report. As of 2:44 p.m. ET, the stock was down 7.3% after falling as much as 10% earlier in the session.
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Is AMD in trouble?
AMD essentially matched estimates in its first-quarter earnings report. However, investors seemed to want a more bullish forecast on AI chips. Management said it expected to sell $4 billion worth of artificial intelligence (AI) chips this year, but that is still far short of AI leader Nvidia.
Meanwhile, AMD is still struggling with the cyclical slowdown in the semiconductor sector as revenue rose just 2% to $5.47 billion, while adjusted earnings per share improved from $0.60 to $0.62, ahead of estimates by a penny.
AMD reported strong growth in the data center and PC/Client segments, while sales in gaming and embedded, which includes automotive, appliances, and infrastructure, were down sharply.
For the second quarter, the company sees revenue of $5.7 billion, a 4% improvement from the first quarter and up 6% from the quarter a year ago. That forecast was better than the consensus of $5.32 billion but shows AMD is still waiting to experience a significant tailwind from AI.
Why AMD stock sold off
The decline in AMD stock seemed to owe more to its earlier run-up on AI expectations than any major problems in the earnings report. The stock has still more than doubled from the start of 2023, though it’s now given back most of its gains from this year. That seems fair, given the latest results and guidance.
AMD still has a lot of potential in the AI boom, as the growth in data center revenue reflects, but investors will have to be patient as the broader business is feeling the impact of an earlier correction in gaming and in the embedded segment.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
