What’s really driving AMD down and what’s coming next?

Last week, AMD reported its fiscal third-quarter earnings, meeting expectations on earnings per share and beating on revenue. The company announced adjusted earnings per share of $0.92 on revenue of $6.8 billion, slightly above Wall Street's expectations. Despite these strong numbers, AMD's stock fell more than 5% following the announcement, mainly due to a cautious Q4 revenue outlook and concerns over slowing AI growth.

AMD saw impressive performance in its data center and client segments, with the data center business bringing in $3.5 billion, surpassing expectations and showing significant growth from last year. The client business, including CPU sales for desktops and laptops, brought in $1.9 billion, also exceeding expectations. However, the gaming segment saw a sharp decline, with revenue dropping 69% year-over-year to $462 million. This decline includes sales of Radeon graphics cards and custom chips for consoles like Xbox and PlayStation.

Despite strong performance in key areas, the cautious outlook for Q4 revenue, projected between $7.2 billion and $7.8 billion, fell short of Wall Street's expectations. CEO Lisa Su emphasized strong demand across data center, client, and embedded businesses, driven by increasing computational needs.

Potential factors influencing AMD's stock price decline include modest Q4 sales forecast, potential tariffs and trade restrictions especially those affecting semiconductor exports to China, and the competitive landscape with Nvidia continuing to dominate the AI chip market. Investors may be concerned about AMD's ability to maintain growth in the face of these challenges.

The political landscape also plays a role in AMD's future. Recent trade policies and potential tariffs under the Biden administration could impact AMD's cost structure. The ongoing trade tensions with China and new restrictions on semiconductor exports might increase production costs and create supply chain uncertainties. The market might be factoring in the possibility of a Kamala Harris administration continuing similar trade and regulatory policies, creating a more stable yet regulated environment for semiconductor companies like AMD.

AMD relies heavily on Taiwan Semiconductor Manufacturing Co. (TSMC) for its chip production. Diversifying its manufacturing base and investing in domestic production could help mitigate some of the risks associated with tariffs and trade restrictions.

Conclusion

So the company exceeded expectations in everything except gaming, and yet the stock tumbled as billions in profit were announced. Most interestingly, the decline in AI growth was a leading factor in the decline, but somehow that decline didn’t translate to NVDA.

Is AMD an indicator of what’s coming for NVDA? Before you consider shorting, remember how iPhone and Nokia battled for the mobile market. Nokia crumbled in the face of superior technology, but the mobile market didn’t shrink, it just shifted to Nokia and Samsung.

It’s very possible that as AMD fumbles, tech companies using AMD chips might pivot to Nvidia technology, which will only boost NVDA in the months as announcements are released.

Which way it will go will be clearer after we see policies from the US election winner. For now, switch to a risk-free demo account and map out how media and revenue reports translate to the charts. Keep your eye on both AMD and NVDA and test theories.

We are seeing market sentiment preempting announcements a lot in 2024, so don’t wait for the media to report on what has already happened. Install a  trading app on your phone and start monitoring the instant notifications of market shifts.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.

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Author:

Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.