AMD’s Q4 Earnings Reveal Mixed Signals Amid Market Reactions
Advanced Micro Devices‘ (NASDAQ: AMD) shares fell 6% on February 5 following the release of its fourth-quarter earnings. The company reported a 24% increase in revenue year over year, reaching $7.66 billion, which surpassed analyst expectations by $132 million. Its adjusted earnings per share (EPS) grew 42% to $1.09, aligning with forecasts.
While these figures seem strong, a slowdown in the growth of AMD’s important data center business may have disappointed some investors. We’ll explore whether this dip in stock price presents a good opportunity for long-term investors.
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AMD’s Performance in Recent Years
AMD is the second-largest manufacturer of x86 CPUs for personal computers and servers, following Intel. It also ranks second in discrete GPU production, behind Nvidia (NASDAQ: NVDA), and distributes programmable chips via its Xilinx subsidiary. Furthermore, it produces custom APUs—integrated units that combine CPUs and GPUs—for laptops and gaming consoles.
In the first half of 2023, AMD’s revenue faced a downturn compared to the previous year, primarily due to a cooling PC market. This drop occurred as the company adjusted to the end of a pandemic-driven growth surge, while higher prices limited consumer spending. Additionally, sales of its custom APUs dipped as Sony and Microsoft reported fewer console sales. However, during the past year, AMD’s revenue began to climb again alongside improved profit margins.
|
Metric |
Q4 2023 |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
|---|---|---|---|---|---|
|
Revenue growth (YOY) |
10% |
2% |
9% |
18% |
24% |
|
Adjusted gross margin |
51% |
52% |
53% |
54% |
54% |
|
Adj. operating margin |
23% |
21% |
22% |
25% |
26% |
|
Adj. EPS growth (YOY) |
12% |
3% |
19% |
31% |
42% |
Data source: AMD. YOY = Year-over-year.
The recent growth has been fueled by two main factors. Firstly, AMD’s client segment continues to progress against Intel, particularly with the launch of its Ryzen 8000 CPUs. Secondly, its data center segment, which sells Epyc CPUs and Instinct GPUs, has seen substantial growth thanks to the rise of AI technology. These factors have helped mitigate weaker sales from gaming GPUs, custom APUs, and embedded chips from Xilinx.
Looking ahead, AMD projects that its revenue will increase by about 30% year over year in the first quarter of 2025, with adjusted gross margins expected to reach approximately 54%. For the full year, analysts predict AMD’s revenue and adjusted EPS will grow by 24% and 43%, respectively.
Why Did Investors React Negatively?
These growth projections appear solid at first glance, but some bulls might be discouraged by the deceleration in its data center revenue growth. While the segment’s revenue did increase by 69% year over year in the fourth quarter, this growth represents a marked decrease from the impressive triple-digit growth seen in the previous two quarters.
|
Metric |
Q4 2023 |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
|---|---|---|---|---|---|
|
Data Center revenue |
$2.3 billion |
$2.3 billion |
$2.8 billion |
$3.5 billion |
$3.9 billion |
|
Growth (YOY) |
38% |
80% |
115% |
122% |
69% |
Data source: AMD. YOY = year over year.
The slowdown is particularly concerning given anticipation for AMD’s Instinct GPUs to compete successfully against Nvidia’s H100 GPUs in the AI-centric data center sphere. While AMD’s products are priced lower, Nvidia possesses a substantial 98% share of the data center GPU market. This dominant position arises from its early entry, strong brand reputation, and proprietary technology. While some businesses might consider AMD’s offerings, it’s uncertain whether they will significantly challenge Nvidia’s established standing.
During the recent conference call, AMD CEO Lisa Su expressed confidence that the data center sector would continue to see “strong double-digit” growth in 2025 as production ramps up for its latest Instinct MI350 GPUs. Although this forecast is encouraging, investors likely expected a more aggressive outlook for this key segment.
Should Investors Consider Buying AMD Now?
With a stock price around $110, AMD appears reasonably valued at 24 times its expected earnings. In contrast, Nvidia’s anticipated revenue and adjusted EPS are set to triple in fiscal 2025, followed by over 50% growth in fiscal 2026, while trading at 31 times forward earnings. Although these figures warrant cautious consideration, it’s evident that Nvidia currently leads the market in the AI realm.
While AMD remains a stable investment, it may not represent a superior choice compared to Nvidia. The company has managed to carve a niche in the data center market, yet it is unlikely to evolve into “the next Nvidia” anytime soon. Therefore, even though AMD may be a stock worth picking up at this time, it may not be a compelling buying opportunity just yet.
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Leo Sun has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, and Nvidia. The Motley Fool also recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
