Semiconductor leader Advanced Micro Devices (NASDAQ:AMD | AMD Price Prediction) just underscored the adage, he who hesitates is lost.
The chipmaker reported solid fourth-quarter earnings after the markets closed on Tuesday, but its outlook for the data center market that houses its artificial intelligence business disappointed investors.
Having allowed rival Nvidia (NASDAQ:NVDA) to gain a massive head start, there seems to be little gas in the tank for others to gain significant traction. AMD stock is falling 9.5% in pre-market trading Wednesday.
Rearview is less important than what’s ahead
AMD posted a strong quarter for its data center business, but its outlook for the segment fell far short of expectations
Advanced Micro posted strong Q4 results, beating analyst estimates on the top and bottom lines. Client revenue, which includes its x86 PC central processing unit (CPU) business, jumped 58% year-over-year to a record $2.3 billion as it continued to take market share from Intel (NASDAQ:INTC), while gaming revenue plummeted 59% to $563 million from last year. However, it rebounded nicely sequentially, rising 22%.
| Actual | Est | % Diff. | |
| Revenue | $7.7 billion | $7.5 | 2.7% |
| EPS | $1.09 | $1.08 | 0.9% |
Yet almost no one cared about any of that and instead focused on the data center segment. Although revenue was strong, rising 69% from the year-ago period to $3.86 billion and it nearly doubled (94%) for the full year, management’s forecast for the coming year sucked all the air out of AMD’s sails.
Revenue from the chipmaker’s graphics processing units (GPU), which are its AI accelerators, are only expected to match what it achieved in the second half of 2024. Despite forecasting growth in the back half of the year, it means AMD is not seeing nearly the kind of growth Nvidia did as AI took off.
It indicates that having took so long to get into the game, most of the momentum has already been absorbed.
A good start, but more to do
Despite guidance falling short, there remains a big and growing market for AMD to excel
Make no mistake, AMD has come very far, very fast. It has gone from essentially nothing to $12.6 billion in annual data center revenue. That is a remarkable achievement and it will be releasing several new AI chips this year that will change the game for it.
Its advanced MI300X accelerator is still winning significant business. International Business Machines (NYSE:IBM), for example, will deploy the AI chip for the IBM Cloud while cloud hosting service Vultr, which allows businesses to use numerous operating systems, including to Windows, Linux, Ubuntu, and more, will use the MI300X accelerator as well as AMD’s ROCm software — akin to Nvidia’s CUDA — for its cloud infrastructure.
AMD will release its MI325 accelerator in the first half of the coming year, with the MI350 and MI400 series, more powerful GPUs, coming in the second half.
There is still plenty of opportunity for AMD to surprise the market with new growth, especially because Nvidia is not without flaws.
Plenty of opportunity for gains
It’s been pointed out that Nvidia’s latest Blackwell accelerators are still having overheating problems and the DeepSeek revelation of making an efficient, powerful large language model off of cheaper, underpowered chips could radically alter the playing field.
Being able to build a leading LLM without needing to purchase Nvidia’s most advanced, complex, and expensive chips could drive developers to AMD.
Probably most important is that AI is still in the very first inning of what promises to be an extremely long game. There is no doubt Advanced Micro Devices is behind and it has a lot of ground to make up.
While that is what has the market is worried at the moment as AMD isn’t showing the sort of exponential growth Nvidia did at the outset of the AI revolution, there is still time.
Key takeaway
AMD has solidified its position in the CPU market and its gaming business seems to be bouncing back. Even in AI and data centers, the semiconductor stock is showing solid growth.
The industry dynamic is rapidly evolving and no one’s position should be seen as secure. AMD may have not scored in the first inning, but it still has a strong lineup that can prove to be heavy hitters in later innings.
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