AMD’s Shares Whipsaw After Q3 2023 Earnings As PC Stability Competes With Guidance Miss

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Chip designer AMD’s shares dropped by 4% in after-market trading after it released its earnings result for the third quarter of its fiscal year 2023. The results saw AMD post annual revenue growth in a sign that troubles in the semiconductor industry appear to be stabilizing. However, at the same time, the firm’s revenue guidance was weaker than expected, leading investors to react and sell the stock after market hours. During Q3 2023, AMD earned $5.8 billion in revenue, translating into $0.70 in non-GAAP earnings per share, for a small 4% annual growth. However, AMD’s GAAP EPS jumped by 350% to stand at 18 cents to a share over the year-ago quarter’s 4 cents.

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After immediately dropping to $94 in after-market trading following the earnings release, AMD’s shares posted a slight recovery and were trading at $94.47 roughly an hour after its earnings release. A deeper dive into AMD’s earnings report reveals that its gaming and personal computing products competed for growth. In this fight, client computing led the charge during the third quarter of 2023, as its revenue jumped by 42% annually to $1.5 billion.

On the flip side, AMD’s gaming revenue, where it has to compete with NVIDIA, was down eight percent year over year. AMD said this was driven by “lower semi-custom sales,” or products used in gaming consoles such as Sony Corporation’s PlayStation 5 or the Nintendo Switch.

Sony sold 3.3 million PlayStation 5 units during the first quarter of its fiscal year 2023. The firm is heavily promoting its video game console for the holiday shopping season, as it aims to sell 25 million units in FY 2023.

 

The personal computing segment, which AMD dubs as the Client division, grew its revenue and improved operating margins. Operating margins drop in an inflationary environment, and as inflation is after aggressive Federal Reserve interest rate hikes, AMD posted a ten percent Client margin during Q3 2023. In Q3 2022, the operating margin was negative three percent.

AMD’s bread and butter, the Data Center segment, posted $1.6 billion in revenue. However, annual growth remained flat, continuing a trend in the market that was also present during Alphabet Inc.’s latest earnings report. The firm’s Google Cloud business division saw revenue growth slow to an 11-quarter low during the third quarter of 2023. Investors responded by punishing the shares in aftermarket trading, particularly since Microsoft’s Azure maintained historical growth levels.

However, AMD quickly noted that the third quarter saw it grow instances powered by AMD processors. The chip designer added 100 new instances to its portfolio, run by big-ticket players in the data center industry, including Amazon, Google, Microsoft, Oracle and Tencent. Within the Data Center business division, AMD’s EPYC CPU sales growth was reduced by a drop in its adaptive system-on-chip (SoC) products, such as the VP1902 adaptive SoC. Investments in AI revenue growth and new products pushed down AMD’s Data Center operating margin to 19% in Q3 2023 from Q3 2022’s 31%.

Overall, the third quarter was also slightly costlier, with AMD’s overall non-GAAP operating margin dropping one percent to 22% annually but improving by two percent sequentially.

For the ongoing quarter, 2023’s last, AMD forecasts $6.1 billion in revenue and a non-GAAP gross margin of 51.%. This is estimated to mark a 5% annual and 6% sequential growth. Analysts had expected AMD to guide $6.4 billion, and the $300 million miss translated into share price drops during after-market trading. However, the drops appeared short-lived as the shares traded at $98.40 at 5:33 p.m. ET. After hours, trading on the NASDAQ exchange closes at 8 p.m., and the stock appears to have stabilized after its initial ~4.4% drop.

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