Advanced microsystems‘ (NASDAQ:AMD) The artificial intelligence (AI)-fueled rally came to a screeching halt in 2024. Shares of the chipmaker are down 29% since early March, when they were trading at a 52-week high, and the company’s latest results are not. will help stop the slide.
AMD reported its first quarter 2024 results on April 30 and investors hit the panic button. Let’s see why this was the case.
Results weren’t strong enough to justify AMD’s high valuation
AMD reported first-quarter revenue of $5.47 billion, an increase of just 2% from last year. The no-GAAP earnings also grew at a modest pace of just 3% year over year to $0.62 per share during the quarter. Analysts were looking for earnings of $0.62 per share on revenue of $5.48 billion, meaning AMD barely met the final estimate and failed to meet expectations in terms of income.
The advice didn’t inspire much confidence either. AMD expects second-quarter revenue to reach $5.7 billion, which would represent a year-over-year increase of just 6%. Even though second-quarter revenue forecasts point to a slight acceleration in AMD’s growth, Wall Street was expecting an uptick of $5.73 billion.
For a stock that trades at a lofty 218 times earnings, AMD needed to generate much stronger growth to justify its rich multiple. The company achieved this in two of its lines of business, which are already reaping the benefits of AI proliferation, but weakness in the other two lines of business weighed on its financial performance.
Specifically, AMD’s gaming revenue declined 48% year-over-year to $922 million. This sharp decline is the result of weak demand for AMD’s semi-custom chips, deployed in gaming consoles Microsoft And Sony, as well as weak sales of the company’s gaming graphics cards. The weakness in this segment is not surprising, as sales of personal computers (PCs), on which gaming graphics cards are deployed, were weak last year.
Additionally, the video game market was stable last year. However, market research firm Newzoo predicts console sales to improve this year. AMD could therefore see a gradual improvement in its gaming revenues as the year progresses.
On the other hand, the company’s revenue from the embedded segment fell 46% year-over-year to $846 million. AMD’s embedded processors are deployed in multiple sectors ranging from automotive and industrial to networking and storage, among others. AMD points out that customers are tapping into their existing inventory in this market, which is why demand for its embedded chips has remained weak of late.
However, AMD says its design momentum in the embedded market remains robust, meaning its embedded processors have been selected for deployment in more products in the future. Once these products enter production, AMD should ideally see an improvement in demand for its embedded processors,…
