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February 23, 2024

AMD Posts Mixed Q4 Results, AI Chip Demand Provides Optimism

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Jan 31, 2024

AMD reported its fourth quarter and full year 2023 financial results on Tuesday, posting mixed results compared to Wall Street expectations. While revenue came in slightly above forecasts, earnings matched projections and guidance for the current quarter disappointed. However, amid the mixed results were some encouraging signs related to demand for AMD’s artificial intelligence and data center offerings.

Q4 Performance Summary

  • Revenue: $6.2 billion, up 16% year-over-year, beating expectations of $6.0 billion
  • Earnings Per Share (EPS): $0.77 adjusted, in-line with expectations
  • Gross Margin: 50%, down from last year, but above company guidance
  • Data Center Revenue: Up 42% annually
  • Client Revenue (PC chips): Down 7% year-over-year
  • Gaming Revenue: Down 7% annually
  • AI Revenue: Not broken out, but cited as strong growth area

AMD CEO Lisa Su pointed to the strong data center and AI chip growth as positives during the quarter, helping offset weakness in the overall PC market. She also noted that next generation AI and data center CPU products remain on track to launch later this year.

Weaker-Than-Expected Q1 Guidance Overshadows AI Optimism

While AMD is seeing booming demand for its Instinct AI accelerators and fourth generation EPYC server chips expected later this year, first quarter guidance came in below expectations. The company forecast Q1 revenue of $5.3 billion, plus or minus $300 million compared to the Wall Street consensus of $5.5 billion.

The light guidance shocked some investors who had bid up AMD shares substantially in recent months based largely on the company’s AI opportunities. As a result, AMD stock dropped over 8% in after-hours trading following the earnings release.

Massive TAM and Design Win Momentum for AI Chips

Although the weak quarterly forecast weighed on shares, AMD management spent much of the earnings call touting developments related to its data center and AI businesses.

On the call, Lisa Su said AMD now expects its total addressable market for data center and AI to reach $100 billion by 2025. The company revealed it has already secured $35 billion worth of AI chip orders from customers to be delivered over the next 3-4 years.

Additionally, AMD announced it has over 100 AI chip design wins with its CDNA 3 and Instinct MI300 hardware. This include 10 major supercomputing wins, positioning AMD to take significant artificial intelligence compute share moving forward.

Plenty of AI Growth Expected in 2024

Management reiterated past commentary that they expect AMD’s AI related revenue to grow by over 100% annually the next two years. The growth is being driven by expanding traction with hyperscale and high performance computing cloud customers.

If achieved, that level of growth would mean AMD’s AI chip sales alone could approach $5 billion next year, equaling close to 20% of total company revenue.

Financial Comparisons

|| Q4 2023 | Q4 2022 | Change | FY 2023 | FY 2022 | Change
|–|–|–|–|–|–|–|
|Revenue | $6.2 billion | $5.6 billion | +16% | $23.6 billion | $16.4 billion | +44%
|EPS (Non-GAAP)| $0.77 | $0.92 | -16% | $3.50 | $2.79 | +25%

While fourth quarter earnings declined versus last year, full year profits were up 25% annually to $3.50 per share. However, guidance implies EPS could decline substantially in Q1 to around $0.70 at the mid-point.

What’s Next For AMD?

The initial negative market reaction indicates investors wanted to see stronger near term momentum to justify AMD’s premium valuation. However, analysts widely agree the company’s data center and AI opportunity remains massive.

Most expect AMD to leverage its new next-gen hardware and expanded customer engagements to driveaccelerating growth in these key segments over the next year. That combined with easier PC/gaming comparisons could put AMD back on track for above market revenue and earnings expansion in 2024 and beyond.

In the meantime, AMD stock may tread water until investors get more proof the growth is materializing. Ultimately though, if adoption for products like the new MI300 AI chip and Genoa data center CPU take off as expected later this year, that would likely reignite AMD as a Wall Street favorite.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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