What happened

Shares of Advanced Micro Devices (NASDAQ:AMD) slumped on Thursday following a disappointing third-quarter report. The chip company missed revenue estimates and provided weak fourth-quarter guidance. The stock was down about 14.3% at 11:25 a.m. EDT.

So what

AMD reported third-quarter revenue of $1.65 billion, up 4% year over year but about $50 million short of the average analyst estimate. Revenue declined 6% from the second quarter, driven by weak graphics sales. The revenue growth rate was down from 53% in the second quarter.

A man with his head on a table in front of a slumping chart.

Image source: Getty Images.

The computing and graphics segment, which includes PC CPUs and GPUs, grew by 12% year over year to $938 million. But segment revenue slumped 14% from the second quarter, with GPU sales to cryptocurrency miners completely drying up. The company also cited elevated GPU channel inventory for the lackluster sales.

The enterprise, embedded, and semi-custom segment produced $715 million, down 5% year over year. Sales of the company's EPYC server chips were unable to fully offset slumping semi-custom and IP-related revenue.

Non-GAAP earnings per share came in at $0.13, up from $0.09 in the prior-year period and $0.01 higher than analysts were expecting. Gross margin jumped 4 percentage points year over year to 40% thanks to newer products including Ryzen PC CPUs and EPYC server CPUs.

Now what

While AMD's third-quarter results were mixed, its fourth-quarter guidance left a lot to be desired. The company expects to produce $1.45 billion of revenue, plus or minus $50 million. That's just 8% year-over-year growth at the midpoint, and far below the consensus analyst estimate of $1.59 billion.

One reason for the steep drop in the stock on Thursday is that expectations had gotten out of hand. Analysts are expecting AMD to produce non-GAAP EPS of $0.48 this year. Even after Thursday's plunge, the stock trades for more than 40 times that estimate.

With revenue growth now in the single digits, and with the graphics business facing a cryptocurrency-related headwind, AMD stock may not be done declining.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.