Shares of Advanced Micro Devices (AMD -1.21%) declined 7.6% in Tuesday's after-hours trading, following the chipmaker's release of its third-quarter 2024 report.The stock's drop is largely attributable to fourth-quarter revenue guidance coming in slightly lower than Wall Street had expected.
As to third-quarter results, revenue was a little better than the analyst consensus estimate while adjusted earnings were essentially in line with the estimate.
On the positive side, management increased its forecast for 2024 data center artificial intelligence (AI)-enabling graphics processing unit (GPU) chip revenue. It now expects this metric to exceed $5 billion, up from its greater than $4.5 billion outlook in July, CEO Lisa Su said on the earnings call. Management has been regularly hiking this forecast, which was $4 billion in April and $2 billion at the start of the year.
Advanced Micro Devices' key numbers
| Metric | Q3 2023 | Q3 2024 | Change YOY |
|---|---|---|---|
| Revenue | $5.80 billion | $6.82 billion | 18% |
| GAAP operating income | $224 million | $724 million | 223% |
| Adjusted operating income | $1.28 billion | $1.72 billion | 34% |
| GAAP net income | $299 million | $771 million | 158% |
| Adjusted net income | $1.14 billion | $1.50 billion | 33% |
| GAAP earnings per share (EPS) | $0.18 | $0.47 | 161% |
| Adjusted EPS | $0.70 | $0.92 | 31% |
Data source: Advanced Micro Devices. GAAP = generally accepted accounting principles. YOY = year over year.
Growth was driven by strong performances by the data center and client segments. Investors should focus on the adjusted numbers, as they exclude one-time items.
Wall Street was looking for adjusted EPS of $0.91 on revenue of $6.71 billion, so AMD modestly surpassed the top-line expectation and essentially met the bottom-line estimate. (I say "essentially met" because it only beat the estimate by $0.01, or by about 1%.) The company also exceeded its own revenue guidance of $6.7 billion. (It doesn't issue a profit outlook.)
In the quarter, AMD generated cash of $628 million running its operations, up 49% from the year-ago period. It ended the quarter with cash, cash equivalents, and short-term investments of $4.54 billion, down from $5.34 billion in the prior quarter. The company ended the period with long-term debt of $1.72 billion, unchanged from the prior quarter.
The decline in cash, cash equivalents, and short-term investments was driven by a cash outflow of $548 million in the quarter associated with the acquisition of Silo AI, which closed in August. Prior to being bought by AMD, this company was reportedly the largest private AI lab in Europe.
AMD's segment performance
| Segment | Q3 2024 Revenue | Change YOY | Change QOQ |
|---|---|---|---|
| Data center | $3.55 billion | 122% | 25% |
| Client | $1.88 billion | 29% |
26% |
| Gaming | $462 million | (69%) | (29%) |
| Embedded | $927 million | (25%) | 8% |
| Total | $6.82 billion | 18% | 17% |
Data source: Advanced Micro Devices. YOY = year over year. QOQ = quarter over quarter.
The data center's revenue marked a fourth consecutive quarterly high, driven largely by the strong ramp up in production and shipments of Instinct MI300 GPUs. AMD introduced the Instinct series in the fourth quarter of 2023 to compete with Nvidia's data center GPUs, which dominate the data center AI chip market. An increase in EPYC central processing unit (CPU) sales also contributed to the segment's growth.
The client segment's year-over-year and sequential growth was primarily driven by sales of Ryzen processors. This segment sells chips for personal computers (PCs).
The gaming segment continues to struggle, largely because of a decrease in semi-custom revenue, which is revenue from sales of processors for consoles.
The embedded segment's year-over-year revenue declined but its sequential revenue rose. The decline is due to customers who are continuing to normalize their inventory levels following slowdowns in some end markets, notably auto and industrial. The sequential rise is due to an improving demand environment for some end markets.
AMD's fourth-quarter guidance
For Q4, management guided for:
- Revenue of $7.5 billion, which equates to growth of 22% year over year and growth of 10% sequentially.
- Adjusted gross margin of 54%. For context, this metric was 54% in the just-reported third quarter.
Going into the report, Wall Street had been modeling for Q4 revenue of $7.54 billion, so AMD's outlook fell just a bit short of this estimate.
A good overall report
AMD turned in a good third-quarter report. It's a particularly positive sign that adjusted EPS growth was notably stronger than revenue growth, reflecting an expanding profit margin.
Third-quarter revenue and margin guidance were solid, even if the revenue outlook was a tad lower than Wall Street had expected.
The after-hours stock sell-off might seem an overreaction to some investors since AMD's Q4 revenue guidance was just a little lighter than Wall Street had expected. However, this dynamic is explainable in the context of AMD stock's recent run-up. Over the one-year period through Tuesday's regular trading session, AMD stock rose 72%, outperforming the S&P 500's 42% return. Given this strong performance, investors have high expectations.
A stock worth a place on your watchlist
Reiterating my closing after AMD's last quarterly report:
Nvidia stock remains my favorite AI stock, but the AI chip and related technology space is growing so rapidly that there is room for more than one big winner. AMD's results since launching its Instinct GPUs late last year are very promising.
