By Brian Swint
AMD stock was falling early Wednesday after disappointing investors on guidance for sales of processors used in data centers. It could be a warning for Nvidia.
Both semiconductor makers have benefited from the excitement around artificial intelligence and enjoy strong valuations. That’s based on high expectations for future growth as companies invest in more computing power to run AI software.
For AMD, those expectations weren’t met. Even though earnings were in line, its new guidance for data-center chips of $4 billion was seen as lowball. While still higher than the previous estimate of $3.5 billion, some analysts were predicting that it should be much higher.
“We are firm believers in AMD’s revitalized product roadmap strategy, and product traction is compelling,” said KeyBanc strategists led by John Vinh. “However, expectations for share gains and growth are high. We’re concerned that any moderate downtick to expectations could add substantial risk to the stock based on valuation levels well above peers.”
KeyBanc has a price target of $270 for AMD stock and gives it an Overweight rating.
AMD slumped 5.7% in premarket trading to $149.60. Coming into Wednesday, the stock had gained 94% in the past 12 months. They’re down more than 20% since peaking in March.
Rival Nvidia, whose shares have tripled in the past year, was down 1.6% to $850.11 in the premarket. However, investors still have plenty of time to consider how worries about AMD’s growth might apply to the company. Nvidia reports earnings on May 22.
Revenue in AMD’s gaming unit was down sharply in the most recent quarter. Growth in chips for personal computers beat consensuses
“We remain on the sidelines for now as AMD’s emergent AI growth story is diluted by sluggish” sales in other areas, said Oppenheimer analysts led by Rick Schafer. They have a Perform rating on the stock.
Write to Brian Swint at brian.swint@barrons.com