AMD Shares Plunge as AI Chip Earnings Fall Short

Advanced Micro Devices (AMD) experienced a 9 percent drop in premarket trading on February 5, as their revenue from AI chips did not meet the high expectations of investors who have invested heavily in the potential of generative artificial intelligence.

As a major player in the semiconductor industry, AMD supplies chips for personal computers and servers. The company released its quarterly financial results, which included a revenue outlook that exceeded analyst predictions. However, this positive news was eclipsed by the disappointing figures related to its AI chip sales, creating a stark contrast to the performance of Nvidia, which holds nearly 80 percent of the AI chip market share.

AMD reported a data center revenue of $3.9 billion for the fourth quarter. This figure serves as a benchmark for its AI revenue and fell short of the analysts' consensus estimate of $4.15 billion.

Ben Barringer, a technology analyst at Quilter Cheviot, commented, "While AMD is making progress in gaining market share from Intel in the CPU segment, it still has a long way to go before it can compete with Nvidia in the GPU market." He further noted that investors expect AMD to challenge Nvidia, but for now, the company is struggling to penetrate Nvidia's strong market position.

If the current losses persist, AMD risks losing approximately $17.5 billion in market capitalization, as shares were priced at $108.78 in premarket trading, based on data from LSEG.

This underperformance comes amid increasing competition in the tech sector. Companies like Microsoft and Meta are investing resources to develop their own chips capable of handling the vast data requirements of generative AI, while competition is also intensifying from the Chinese AI firm DeepSeek.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, stated, "Investors were always going to be more critical, especially considering the emergence of DeepSeek. AMD's recent results and outlook seem to have further shaken investor confidence."

In response to the disappointing results, at least five analysts have lowered their price targets for AMD stock, with the median target now set at $155, compared to $166.5 prior to the earnings announcement.

In the year 2024, AMD's stock has already declined by 18 percent, in stark contrast to Nvidia, whose stock has climbed by 171 percent during the same period.

Additionally, AMD's forward price-to-earnings ratio stands at 23.39, whereas Nvidia's ratio is higher at 26.27, reflecting a significant gap in market valuations between the two companies.

AMD, shares, AI