Why AMD Stock Is Tumbling Despite Better-Than-Expected Results
Key Takeaways
- Chipmaker Advanced Micro Devices on Tuesday reported better-than-anticipated quarterly sales and offered a rosy outlook for the current quarter.
- Shares, which rose nearly 80% in the months leading up to Tuesday’s report, slid on Wednesday despite the results.
- Analysts at Bank of America and Wedbush see potential upside from chip sales to China in the second half, assuming tensions between the U.S. and China don’t flare up amid trade negotiations.
Better-than-expected sales and guidance weren’t enough to lift Advanced Micro Devices (AMD) stock over the high bar set by its run-up in recent months.
AMD on Tuesday reported second-quarter sales that topped estimates, and offered Wall Street a rosier-than-expected outlook for the current quarter. Still, shares of the Nvidia competitor were down nearly 7% in recent trading.
Above-consensus revenue was driven by strength in AMD’s gaming segment, while earnings, margins, and data center sales were negatively impacted by an $800 million charge related to restrictions on the sale of AI chips to China. The company projected growth at all of its units in the third quarter, and forecast double-digit revenue growth as it ramps sales of its MI355X next-gen AI chip.
Most analysts attributed the market’s reaction on Wednesday to high expectations and a lofty valuation. “We believe guidance for the AI chip business was in line with Buyside expectations (based on our investor discussions), which is why the stock traded lower,” according to Citigroup analysts.
Bank of America analysts predicted Wall Street was reacting negatively to “likely ignorable earnings noise” and that the stock wasn’t helped by its approximately 80% run-up in the three months leading up to Tuesday’s results.
Potential Upside From China Sales?
One big unknown still hanging over AMD is how much revenue the company will generate when it resumes sales of its MI308 chip to China. (The MI308 was designed expressly for Chinese customers to satisfy Biden-era restrictions.) AMD and Nvidia last month said the Commerce Department had agreed to restart reviewing their export license applications after abruptly halting them earlier in the year. Nonetheless, AMD excluded MI308 sales from its guidance on Tuesday.
“There are no China GPU licenses yet, which didn’t hurt the outlook but possibly is a letdown for those modeling a $500mn quarterly China contribution in Q3/Q4,” wrote Bank of America analysts in a note on Wednesday.
But BofA saw reason for optimism in the outlook. “AMD now expects ~$1.7bn in Q3 GPU sales even without ~$800mn of lost China revenue, suggesting overall ~$500mn higher outlook excluding China vs. $2.0bn pre-ban consensus.”
Wedbush analysts echoed that bullish view. “The Q3 outlook was better than expected on substantial Q/Q DC GPU growth expectations, even without assuming any MI308 export licenses are granted,” they wrote. “In turn, we believe this guide sets up AMD to exceed our prior outlook for the out quarters.”
Price Targets Raised; Ratings Remained Mixed
Analysts at Wedbush raised their AMD stock price target to $190 from $170 on Wednesday. The firm maintained its “outperform” rating on the stock. Citigroup lifted its price target to $180 from $165 but stood by its “neutral” rating, citing elevated expectations.
Seven of the 11 analysts tracked by Visible Alpha with current AMD ratings and price targets rate the stock a “buy,” with the remainder assigning it a neutral rating. The average price target of $183 implied about 5% upside from Tuesday’s closing price. AMD shares were trading at about $161 midday Wednesday.