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Why Shares of AMD Tumbled Today

By Timothy Green - Oct 25, 2018 at 12:21PM

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The chip company's growth slowed way down, and its guidance was not good.

What happened

Shares of Advanced Micro Devices (AMD 3.55%) 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.

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