AMD's first-quarter report and guidance were not bad, but the sales outlook for AI chips did not meet the market's high-profile expectations, falling 9% after hours Financial reports

After the U.S. stock market on Tuesday, April 30, AMD, the semiconductor giant that is catching up with Nvidia in the field of AI chips and constantly gaining ground from Intel in the CPU field, released its financial report for the first quarter of 2024.

Although the company's first-quarter report was better than expected, with data center revenue, which includes AI chip sales, and client revenue, which is closely linked to the improvement of the PC market, both surging by 80% year-on-year, its revenue guidance for the second quarter was in line with expectations "no excitement", and the annual sales forecast for AI accelerator chips was raised to only $4 billion, far worse than rival Nvidia, and the stock price fell to 9% after hours.

AMD closed down more than 1% on Tuesday, halting a four-day winning streak and breaking off a two-week high, up 7.4% this year, slightly outperforming the Nasdaq's cumulative gain of more than 4%, but lagging the Philadelphia Semiconductor Index's year-to-date rise of nearly 12%.

Driven by the prospect of artificial intelligence growth, AMD has risen more than 76% over the past year, while rival Nvidia has surged nearly 200%. AMD has fallen 25% from its peak of $211.38 in early March amid concerns about annual sales of the MI300 AI chip.

Among the 32 analysts covering the stock recently, 25 have a "buy" rating, 7 have a "hold" rating, and no one recommends "sell", indicating that Wall Street is still optimistic, and the average price target of $204.15 suggests that there is still room for nearly 29% upside.

AMD's first-quarter revenue increased by 2% year-on-year, gross margin further expanded, and the annual sales forecast for AI chips was raised

AMD's revenue and earnings expanded year-over-year, thanks to increased sales of artificial intelligence and PC PCs.

According to the financial report, AMD's first-quarter revenue increased 2% from $5.35 billion in the same period last year to $5.47 billion, slightly higher than the market expectation of $5.45 billion, but lower than the $6.17 billion in the fourth quarter of last year.

Adjusted EPS came in at $0.62 per share, beating consensus estimates of $0.61 and $0.60 in the first quarter of last year. GAAP net income for the first quarter was $123 million, or $0.07 per share, compared to a net loss of $139 million, or a loss per share of $0.09, in the year-ago quarter.

However, some netizens are not satisfied with the help provided by AI chip sales to AMD's net profit.

The company's gross profit margin under GAAP in the first quarter increased by 3 percentage points year-on-year to 47%, non-GAAP gross margin increased by 2 percentage points to 52%, and non-GAAP operating profit was $1.1 billion and net income was $1.0 billion, and profitability continued to strengthen.

In terms of performance guidance, AMD expects revenue in the second quarter of this year to be about $5.7 billion, plus or minus $300 million, which is equivalent to a year-on-year increase of about 6% and a quarter-on-quarter increase of about 4%, which is in line with the market expectation of $5.72 billion, and the non-GAAP gross margin will further increase to 53%.

The company's CFO said it will continue to drive revenue growth and margin improvements, while investing in huge AI opportunities in the future.

However, some analysts pointed out that just releasing a slightly better-than-expected earnings report and revenue guidance that met expectations was not enough for investors who expected AI to quickly provide performance assistance, which made AMD's stock price decline continue to expand after hours.

AMD Chairman and CEO Lisa Su raised her annual sales forecast for the MI300 AI accelerator chip to $4 billion this year from $3.5 billion at the beginning of the year, after the market thought $6 billion was a conservative figure, and disappointment may have contributed to the post-market decline. By comparison, Nvidia's data center sales reached $18.4 billion in the first quarter.

According to Su, AMD won market share in server CPU chips in the first quarter, and "AMD is seeing signs of improvement in demand for its CPUs due to the boom in AI servers."

The first quarter of this year was also the first full sales quarter after the launch of the MI300 AI accelerator, and "supply was tight and product supply outstripped demand". The AI chip has been adopted by more than 100 enterprises and AI customers, including Microsoft, Meta and Oracle, and has sold more than $1 billion since its launch in Q4 2023:

"This is an incredible and exciting time for the industry as the widespread deployment of AI is driving demand for more computing across the broader market. We've executed really well in terms of expanding our data center business and enabling AI capabilities across our portfolio. ”

Both data center and PC client revenue surged 80% year-over-year, with data center revenue reaching new highs and accelerating

"The first quarter was strong, with the company's data center over-client business growing more than 80% year-over-year, driven by increased MI300 AI accelerator shipments and the adoption of Ryzen and EPYC processors," said Su. ”

In terms of business, the first-quarter revenue of the data center division, which includes new AI chips, increased by 80% to $2.3 billion from $1.3 billion in the same period last year, setting a record high in the history of the business unit, higher than the market expectation of $2.27 billion, and significantly better than the 38% year-on-year revenue growth rate in the fourth quarter of last year, representing the outstanding contribution of the artificial intelligence MI300 chip launched at the end of last year.

According to some analysts, AMD's data center revenue growth in the fourth quarter of last year and the first quarter of this year was "considerable".

The company said that data center revenue, driven by the growth of AMD Instinct™ GPUs and fourth-generation EPYC™ CPUs, not only hit a record high but also rose sharply year-over-year, but also increased 2% sequentially, better than the market expectation of flat sequential, mainly due to the sales drive of AMD Instinct GPUs. However, revenue in this segment was partially offset by a seasonal decline in server CPU sales.

First-quarter revenue in the client segment, which includes PC sales, rose 85% year-over-year to $1.4 billion, higher than expectations of $1.29 billion, driven primarily by sales of Ryzen 8000 series CPUs, but revenue fell 6% sequentially.

Client segment revenue rose 62% year-over-year to $1.5 billion in the fourth quarter of last year. In the first quarter of this year, the PC market began to recover, and according to IDC statistics, global PC shipments increased by 1.5% in the quarter, the first increase after two years of decline.

However, AMD's gaming division revenue plunged 48% year-over-year and 33% sequentially to $922 million, significantly below the consensus of $964 million, mainly due to lower semi-custom revenue and lower AMD Radeon™™ GPU sales. As customers continued to manage inventory levels, revenue in the Embedded Group fell 46% year-over-year and 20% sequentially to $846 million, missing expectations of $941 million.

Why is it important and what to focus on?

Mizuho analyst Jordan Klein said AMD has the "biggest opportunity" to reshape investment sentiment in the chip industry through earnings earnings, after its stock price was in "absolute free fall" from its peak in March, and the earnings report could lead other chip stocks to rebound.

The two key metrics that investors pay the most attention to are: sales guidance for AI chips such as the AI accelerator MI300 and PC market performance. AMD and Intel have also introduced AI PCs, where generative AI applications can be run locally rather than over a network.

In addition to AI-based capital expenditures, Wall Street is looking to AMD to provide a strategic picture of its foray into the data center AI market. At the beginning of the year, AMD raised its revenue forecast for the MI300 chip in 2024 from $2 billion to just over $3.5 billion, but it was lower than the consensus estimate of $6 billion. AMD has said that the MI300 chip is directly benchmarked against NVIDIA's best-selling H100 series accelerator.

What do you think of Wall Street?

According to some analysts, AMD tried to use the MI300 GPU chip to subvert Nvidia's dominance in the data center AI market, but after Nvidia launched the next generation of the strongest Blackwell platform and the price was lower than market expectations, AMD's strategy faced major obstacles.

However, with the Zen 4 architecture and the strong moat of the MI300 chip, Wall Street has no shortage of confidence in AMD. UBS believes that this year's MI300 sales of $5 billion to $6 billion are conservative estimates. Susquehanna also believes that sales will exceed $5 billion this year, and "we believe AMD has accumulated enough MI300 pre-orders and backlogs to support its revenue guidance increase."

Bank of America said it "remains bullish on vendors serving the cloud infrastructure market" and said AMD will join Nvidia, Broadcom, Marvell Technology and Micron Technology as the "Big Five Artificial Intelligence Beneficiary Five":

"AMD's recovery story in the second half of the year remains intact, with data center growth for both AI and non-AI servers being catalysts. After long-term inventory digestion, the embedded business will also rise from the trough in the first half of this year. There will be a broad-based cyclical recovery in the non-AI sector, with server CPU inventories set to return to normal after a 33% plunge in shipments last year. ”

According to Bernstein, AMD's outlook for MI300 sales this year was significantly weaker than market expectations, which may have been triggered by the delay of customer orders due to high-bandwidth memory supply issues, but this does not reflect the final sluggish demand, nor will it be a structural problem, and the ability of the MI300 to serve as a powerful alternative to Nvidia has not changed:

"A lot of the discussion at the end of last year focused on AMD's potential in the AI hardware market behind Nvidia. The market opportunity looks vast, but AMD will have to move quickly to capitalize on this positive trend because Nvidia is not standing still. The MI300 can barely compete with the H100, but Nvidia is launching the H200 and will launch the Blackwell chip in the second half of the year. ”

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