Despite higher than expected revenue in the third quarter, chip giant AMD's stock price plummeted by over 7% after hours due to performance guidance indicating a slowdown in AI (artificial intelligence) chip sales growth.
After the stock market closed on October 29th local time, AMD announced its third quarter 2024 performance as of September 28th, with revenue of $6.819 billion during the reporting period, a year-on-year increase of 18%, higher than the market expectation of $6.71 billion; Under General Accounting Principles (GAAP) in the United States, net profit was $771 million, compared to $299 million in the same period last year, a year-on-year increase of 158%; Non GAAP net profit increased by 33% year-on-year to $1.504 billion, and diluted earnings per share increased by 31% year-on-year to $0.92, in line with market expectations.
AMD Chairman and CEO Su Zifeng said, "The company's financial performance in the third quarter was strong, reaching a historic high, thanks to the growth in sales of data center products EPYC processors and Instinct chips, as well as strong demand for PC processors Ryzen. Looking ahead, benefiting from the growing demand for computing power, we see huge growth opportunities in the data center, client, and embedded business areas
AMD's Executive Vice President and Chief Financial Officer Jean Hu stated, "Based on the significant growth of our data center and client businesses, we are expected to achieve record annual revenue in 2024." AMD predicts that the company's total sales of AI accelerators this year will exceed $5 billion, higher than the previously estimated $4.5 billion.
However, in terms of performance guidance, AMD expects fourth quarter revenue to reach the range of $7.2 billion to $7.8 billion, with a median of $7.5 billion representing a year-on-year growth of 22%, lower than the market expectation of $7.55 billion. AMD (Nasdaq: AMD) stock rose 3.96% to close at $166.25 per share on the 29th, with a total market value of $269.1 billion. After hours, the stock price fell more than 7.5%. According to Wind data, AMD's stock price has risen nearly 13% since the beginning of this year, without considering the subsequent decline.
AMD Q3 Performance Summary. Source: AMD Financial Report
From a business perspective, AMD's data center business achieved good results in the third quarter, with revenue of $3.549 billion, a year-on-year increase of 122%. AMD announced that its important data center business has doubled its sales for the second consecutive quarter, mainly due to the growth in sales of its EPYC CPU and Instinct GPU products. Meanwhile, with the increase in data center revenue, AMD's gross profit margin expanded to 54% in the third quarter.
During the post earnings conference call, Su Zifeng stated that there is still a high demand from cloud computing suppliers and other companies to build AI infrastructure. AMD announced in early October that the new AI chip MI325X is scheduled to start shipping in the fourth quarter, and "customers and partners are very interested in MI325X".
In terms of other businesses, the client business revenue increased by 29% year-on-year to $1.881 billion, mainly driven by the demand for Zen 5 AMD Ryzen processors; The revenue of the gaming business decreased by 69% year-on-year to $462 million, mainly due to the impact of the decline in semi custom revenue; The revenue of the embedded business unit was $927 million, a year-on-year decrease of 25%, mainly due to customers returning inventory levels to normal.
AMD has always been seen as a competitor striving to catch up with AI chip leader NVIDIA. Regarding the market reaction after the release of the company's financial report, analysis suggests that investors are concerned about seeing AMD's hint of slowing demand for AI in the market. In addition, some investors believe that AMD is mainly limited by its supply chain and unable to meet the still surging AI chip orders.
Lucas Keh, an analyst at Third Bridge, a market research firm in the United States, said that AMD's after hours stock price decline indicates that investors hope to see the data center division drive more growth. Meanwhile, the weak performance of AMD's client and embedded divisions may have exacerbated investors' concerns.
However, Keh remains optimistic about AMD's prospects as the "second largest" AI chip market, believing that GPU sales will continue to be the main driving force for AMD's future growth: "Currently, under the impact of delayed shipments of Nvidia Blackwell chips, AMD has the opportunity to compete for more market share with its 325x and 350 Instinct products
In October of this year, AMD held the "Advancing AI" conference in San Francisco, USA, announcing the launch of a new AI chip MI325X, which will be benchmarked against Nvidia's Blackwell chip. It will enter mass production in the fourth quarter of this year and be launched in 2025. Although AMD released a new AI chip, it failed to provide any new customer or financial performance information at the event, putting pressure on the company's stock price.