AMD's performance and guidance exceeded expectations, data center underperformed, after-hours rose over 5% then turned to a decline of 9% | Earnings Report Insights

On February 4th, after the U.S. stock market closed, chip manufacturer AMD, which is making a significant push into AI, released its fourth-quarter financial report for last year. Although most indicators and forward guidance exceeded expectations, with fourth-quarter revenue, annual revenue, and quarterly and annual data center revenue all hitting record highs, data center revenue fell short of expectations. After rising over 5% in after-hours trading, the stock quickly turned to decline, with losses expanding to over 9%.

1 ) Key Financial Data:

Revenue: Fourth-quarter revenue reached a record high of $7.66 billion, a year-on-year increase of 24%, exceeding market expectations of $7.54 billion.

EPS: The diluted earnings per share under non-GAAP for the fourth quarter was $1.09, in line with market expectations.

Profit: The non-GAAP gross margin for the fourth quarter was 54%, up from 51% in the same period last year; non-GAAP operating profit increased by 43% year-on-year to a record high of $2 billion; non-GAAP net profit reached a record high of $1.8 billion.

Full Year: Revenue for the full year 2024 also reached a record $25.8 billion, a year-on-year increase of 14%; non-GAAP gross margin reached a record 53%, up 3 percentage points year-on-year, and operating profit margin expanded to 26%; non-GAAP operating profit was $6.1 billion, net profit was $5.4 billion, and diluted earnings per share under non-GAAP was $3.31.

2 ) Segment Business Data:

Data Center Division: Fourth-quarter revenue grew 68% year-on-year to a record high of $3.9 billion, but fell short of analyst expectations of $4.12 billion. Full-year data center revenue nearly doubled to $12.6 billion. Revenue for 2024 is expected to reach a record high of $12.6 billion, a year-on-year increase of 94%.

Client Division Including PC Chips: Fourth-quarter revenue reached a record high of $2.3 billion, a year-on-year increase of 58%, exceeding analyst expectations of $1.98 billion. Full-year revenue for 2024 is expected to reach a record high of $2.3 billion, a year-on-year increase of 58%.

Gaming Division: Fourth-quarter revenue decreased 59% year-on-year to $563 million, but was higher than analyst expectations of $487 million. Revenue for 2024 is expected to decrease 58% year-on-year to $2.6 billion, mainly due to a reduction in semi-custom revenue.

Embedded Division: Fourth-quarter revenue decreased 13% year-on-year to $923 million. Revenue for 2024 is expected to decrease 33% year-on-year to $3.6 billion, mainly due to customer inventory clearance normalizing inventory levels.

3 ) Performance Guidance:

Revenue for the first quarter of 2025 is expected to be between $6.8 billion and $7.4 billion, with a midpoint of $7.1 billion exceeding market expectations of $7.04 billion, representing a year-on-year increase of over 31% compared to $5.4 billion in the first quarter of 2024, but a quarter-on-quarter decline of 7%

The non-GAAP gross margin is expected to be 54%.

AMD bets on strong demand for AI chips, Su Zifeng optimistic that cheap AI models will accelerate the application of AI technology

Analysts pointed out that other disappointing data points in AMD's quarterly report include: a 28% year-on-year decline in net profit under GAAP in the fourth quarter to $482 million, and a 29% year-on-year decline in GAAP diluted earnings per share to $0.29, both below expectations.

However, AMD's revenue guidance for the next quarter exceeded expectations, indicating that as tech giants continue to invest in AI infrastructure, the company bets on strong demand for its AI chips. The earnings report also stated that although the gaming and embedded segments face short-term challenges, the overall financial situation remains strong, with record annual revenue and improved profit margins, demonstrating the company's effective cost management and pricing capabilities.

The report stated that AMD attributed the record high data center revenue in the fourth quarter to strong demand for AI chips, benefiting from a surge in shipments of AMD Instinct GPUs and growth in EPYC CPU sales, marking the company's successful entry into the AI accelerator market. AMD has also expanded its AI partnerships with IBM, Vultr, and Aleph Alpha, focusing on the development and deployment of AI infrastructure:

“The annual revenue of Instinct accelerators reaching $5 billion in 2024 is a key milestone in challenging NVIDIA's dominance in the AI chip field.”

At the same time, client revenue saw significant year-on-year growth, reflecting the strong performance of Ryzen processors in desktops and mobile devices, as well as AMD's growing presence in the AI-supporting personal computer (PC) sector:

“The expansion of the Ryzen AI product portfolio and the strategic partnership with Dell in commercial PCs indicate a significant increase in AMD's market share in the enterprise sector.”

AMD Chairman and CEO Su Zifeng stated that 2024 is a transformative year for the company, achieving record annual revenue and strong profit growth. With the accelerated adoption of EPYC processors, annual revenue from data centers nearly doubled, and AMD Instinct accelerator revenue exceeded $5 billion:

“Looking ahead to 2025, based on the strength of our product portfolio and the growing demand for high-performance and adaptive computing, we see clear opportunities for continued growth.”

In the earnings call, Su Zifeng emphasized that those cheap artificial intelligence models will accelerate the application of AI technology, optimistic about the overall AI cycle, and the company sees clear growth opportunities for server CPUs in 2025.

The company also stated that it expects strong double-digit percentage growth in revenue, EPS, and data center business in 2025, with the data center business expected to strengthen in the second half of the year. Analysts had originally repriced expectations for the company's revenue growth in 2025 to 25% AMD has started mass production of the MI325X in the fourth quarter, with good progress in increasing production, on track for the launch of the MI400 in 2026.

What does Wall Street think? Many major investment banks lowered their target prices before the quarterly report, but the overall rating remains "buy."

In the past 12 months, AMD's stock price has fallen by 33%, outperforming its old rival Intel, which has dropped by 54%. However, during the same period, competitor Nvidia surged by 80%. AMD's stock has dropped about 18% in 2024, while Nvidia has skyrocketed over 171%.

Many analysts have pointed out that the disparity in stock performance is mainly due to doubts about AMD's AI chip design roadmap and its ability to compete with Nvidia's products in the emerging AI data center business, as well as a pessimistic outlook on the PC market's performance in the first half of this year.

Overall, however, Wall Street's bullish sentiment towards AMD outweighs the bearish sentiment, believing that AMD and its competitors may continue to benefit from strong spending in AI. Bank of America and Raymond James both noted that competition from Chinese companies like DeepSeek in the AI field may prompt U.S. tech companies to invest more in AI, thereby benefiting chip manufacturers like AMD.

However, last week, Keybanc warned that AMD's main competitor, Intel, provided guidance for the first quarter that was below expectations due to a weak global economy, which may also put AMD in a short-term predicament of weak laptop shipments and reduced demand for server processors. Additionally, investors trying to prepare for potential tariffs from the Trump administration may have partially brought forward purchasing behavior for the first quarter to the end of last year.

Investment bank Cantor Fitzgerald also lowered AMD's target price ahead of the quarterly report, from $150 to $135, believing that data center revenue will be below expectations.

Previously, Bank of America had already lowered its target price from $180 to $155 in December, downgrading its rating from "buy" to "neutral," concerned that Nvidia's Blackwell GPU supply constraints would increase demand for Marvell Technology and Broadcom's custom AI chips, thereby reducing AMD's market share.

HSBC and Goldman Sachs also lowered their target prices, with HSBC believing that AMD's AI GPU roadmap is less competitive than previously expected, limiting its penetration in the AI GPU market. Goldman Sachs is concerned about the impact of Arm-based chips on AMD's products, fearing that the rise of such products will put pressure on AMD's profit margins, revenue growth, and price-to-earnings ratio