Advanced Micro Devices, Inc. (NASDAQ:AMD), once riding high at $166 on October 29, has seen a sharp 19% plunge within one month. Here is what happened:
On October 30, Advanced Micro Devices, Inc. (NASDAQ:AMD) shares fell nearly 10% after the company posted its third-quarter earnings, meeting expectations on earnings per share and beating on revenue. It reported adjusted earnings per share of $0.92 on revenue of $6.8 billion, whereas Wall Street was anticipating an adjusted EPS of $0.92 on revenue of $6.7 billion, based on analyst consensus estimates from Bloomberg. However, it was the company’s lighter Q4 revenue outlook that Wall Street wasn’t too happy about.
The company said that revenue would be roughly $7.5 billion in the fourth quarter, while analysts had estimated $7.55 billion on average. Expectations largely came from the next generation of AI chips that AMD had recently revealed. Before the company posted its earnings, it had launched its next generation of AI chips at the Advancing AI event.
Investors were looking for an increase in its AI sales outlook, or some new customer announcements, which the company failed to deliver and it eventually weighed on the stock. Adding to the soft quarterly revenue forecast, the company revealed a $5 billion AI chip sales target for 2024—seemingly not enough for investors. CEO Lisa Su said chip supplies will be tight going into next year, revealing how demand for the processors was rising faster than their production.
On November 13, news emerged that AMD is about to cut nearly 4% of its global workforce. A Wall Street Journal report revealed how the company would be laying off around 1,040 employees as part of its broader business strategy. On November 13, AMD’s stock fell 2.1% to $140.66, even as the NASDAQ rose 0.4%.
The broader semiconductor industry hasn’t been kind either, likely having a notable impact on AMD. The VanEck Semiconductor Exchange-Traded Fund fell 14% to $241 around November 18, with many investors locking in gains. However, the broader market had also been concerned about China’s potential retaliation against tariffs that President-elect Donald Trump is expected to impose on Chinese goods. These two factors reflected heightened investor caution around the semiconductor space.
AMD also slid when the company announced its Chief Accounting Officer Darla Smith resigned, effective Nov. 18. While the company said Smith’s resignation is not the result of any matter relating to its accounting practices or financial reporting, shares fell about 1% in postmarket trading.
AMD may be making significant strides in the AI space, but it still faces tough competition from Nvidia as well. This competitive pressure has raised concerns about AMD’s ability to capture a substantial share of the rapidly growing AI chip market. However, Nvidia itself revealed a recent revenue forecast on November 20 that indicated its slowest growth in seven quarters. The apprehension surrounding Nvidia’s performance has had a ripple effect across the semiconductor industry, impacting companies like AMD.
While we acknowledge the potential of AMD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.