AMD’s Weak Forecast Overshadows Prospects for AI Chips

(Bloomberg) — Advanced Micro Devices Inc. declined in late trading after giving a weak revenue forecast, even as the chipmaker predicted that new artificial intelligence processors would generate more money than expected this year.

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First-quarter revenue will be about $5.4 billion, the company said in a statement Tuesday. That was well short of the $5.77 billion analysts had estimated and echoed rival Intel Corp.’s downbeat view of the PC and data center chip markets. AMD fell more than 6% in extended trading following the announcement.

The outlook renewed concerns that customers are holding off on purchases in AMD’s core markets: PCs, servers, game consoles and programmable processors. Though the company is pushing into AI accelerators — a lucrative area where Nvidia Corp. dominates — it’s still early in that expansion.

The company unveiled a line of AI accelerators last month called the MI300. Such chips help companies develop AI models by bombarding them with data, and they’re in high demand. AMD predicted sales of more than $3.5 billion for the MI300 in 2024, up from an earlier forecast of $2 billion. But Wall Street has been predicting numbers as high as $8 billion, according to Chris Caso, an analyst at Wolfe Research.

AMD’s stock had been one of the favorite picks of investors looking for ways to bet on AI computing. Its shares have been the second-best performing stock on the Philadelphia Stock Exchange Semiconductor Index this year after a similar performance in 2023.

The big question is whether AMD’s MI300 processors can challenge the dominance of Nvidia and its H100. That company’s revenue doubled in the latest fiscal year, according to estimates.

Intel, meanwhile, has suffered tepid demand in the market for programmable processors, an area where it also competes with AMD. Those chips can have their function changed or updated even after they’ve been installed in electronic devices.

In its quarterly report last week, Intel said the lucrative market for data center processors is weakening as well. Three months ago, AMD had warned investors that demand for game console and embedded processors was slower. It reiterated that idea Tuesday, saying that those markets will remain sluggish this year.

AMD said that its gross margin — the percentage of sales remaining after deducting the cost of production — will be about 52% in the first quarter, in line with projections.

Fourth-quarter earnings were 77 cents a share, excluding some items, matching estimates. Revenue was $6.17 billion, versus an average projection of $6.13 billion.

AMD’s PC chip division had revenue of $1.46 billion, compared with a $1.51 billion estimate. Data center sales came in at $2.28 billion, just short of a $2.3 billion projection. Gaming computer-related revenue was $1.37 billion. Analysts had seen that division having sales of $1.25 billion.

The company is the second-largest maker of chips that go onto add-in graphics cards, which turn PCs into gaming machines. And it provides chips to both Sony Group Corp. and Microsoft Corp. for their consoles. Nvidia leads the market for PC add-in card chips.

The Santa Clara, California-based company is also Intel’s largest rival in computer processors, the main component of laptops, desktops and the server machines.

(Updates starting in first paragraph.)

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