The worst since 2018! AMD drops 17% intraday, is the earnings guidance the culprit?

On the first trading day after Tuesday’s earnings release, AMD’s stock gap down 11.2%, and by the end of the morning session, the intraday decline expanded to over 17%, marking the largest intraday drop since October 2018. If the decline remains over 13% at the close, AMD will erase all its stock price gains since 2026.

Overall, AMD’s fourth-quarter results exceeded Wall Street expectations. Why did the stock still plunge sharply? Analysts suggest that part of the reason is that AMD’s Q1 revenue guidance failed to meet some analysts’ high expectations, and investors are questioning AMD’s ability to catch up with Nvidia amid fierce competition in the AI chip market.

AMD’s midpoint revenue guidance for Q1 is approximately $9.8 billion, higher than the nearly $9.4 billion consensus estimate but below the record-high quarterly revenue of $10.27 billion in Q4, and it did not reach some optimistic analysts’ expectations of over $10 billion.

This weak guidance disappointed the market, as investors had hoped for greater returns amid the AI spending boom. Meanwhile, the increase in revenue from older chips sold in China, though boosting sales, dragged down profit margins. Bernstein analyst Stacy Rasgon stated, “Without a boost from the Chinese market, overall performance isn’t much beyond ‘meeting expectations,’” and pointed out that “short-term AI business data hasn’t shown a true inflection point growth.”

The sharp decline also reflects investors’ more cautious attitude in re-evaluating AI sector valuations. AMD is trading at a forward P/E of 33.16, and at such a high valuation, any execution missteps could lead to sharp adjustments.

Strong Earnings but Failing to Alleviate Competition Concerns

The earnings report showed that AMD’s revenue in Q4 last year grew 34% year-over-year to $10.3 billion, surpassing the $9.65 billion analyst consensus. Adjusted earnings per share (EPS) for the quarter was $1.53, nearly 16% higher than the $1.32 expected by analysts.

As a major beneficiary of AI spending, data center business grew 39% year-over-year in Q4 to $5.38 billion, well above the $4.97 billion expected by analysts. Personal computer (PC) related sales increased 34% to $3.1 billion.

Media reports indicate that AMD faces increasing competitive pressure in the booming AI chip market. Tech giants are increasingly using custom AI chips, with Google and Anthropic securing multi-billion-dollar advanced processor supply agreements, all adding pressure on AMD.

After the close on Tuesday, AMD disclosed that shipments of MI308 chips to Chinese customers in Q4 generated $390 million in revenue, but it is expected that this quarter such sales will drop to about $100 million, indicating waning demand for this increasingly outdated product. AMD stated it is still seeking to sell newer MI325 processors in China but has not yet obtained the necessary licenses.

Wall Street Analysts’ Views Diverge

Chris Rolland from Susquehanna said, “First, expectations were quite high. Second, they announced shipments of revenue from the Chinese market this quarter, which was unexpected. This was not in the market’s forecast, so when you factor this in, the actual upside was not as large as we imagined.”

However, Rolland pointed out that demand for AMD’s data center chips remains strong, and the company also hinted at large contracts totaling several gigawatts (GW) in the future.

AMD CEO Su Zifeng maintained her usual optimistic tone during the earnings call, reaffirming the company’s AI revenue forecast reaching hundreds of billions of dollars by 2027. She downplayed potential component shortages, stating the company will be able to meet the increased orders. She told analysts, “Undoubtedly, demand remains strong. So we are working with our supply chain partners to increase supply.”

Su Zifeng said that the demand for next-generation AI servers, including shipments to OpenAI and other clients, is expected to accelerate significantly in the second half of this year.

Recent agreements with OpenAI, Oracle, and the U.S. Department of Energy reflect growing market interest in AMD’s MI series AI accelerators. In October last year, AMD reached an agreement with OpenAI, which may hold a 10% stake in AMD and deploy 6 GW of AMD Instinct GPUs internally over several years. Oracle also announced plans to deploy 50,000 AMD AI chips starting later this year.

Drop Could Be a Buying Opportunity

Despite the sharp decline, some analysts believe this correction may present a buying opportunity for investors.

Market observer Thomas Hughes pointed out that AMD’s post-earnings drop looks like a buy window desired by bulls. Although the results beat consensus expectations, whisper numbers suggest the upside will come later this year.

According to MarketBeat tracking, the initial revisions include numerous reiterations of ratings and target prices, as well as some upward revisions focused on future prospects. Upcoming launches include the Helios rack-scale solution in the second half of this year, which is expected to significantly accelerate growth. Most analysts have set AMD’s target price between $280 and $300, implying a 40% to 50% upside from key support levels and the potential to reach new all-time highs.

Investors’ reactions to AMD’s earnings contrast sharply with Super Micro Computer (SMCI), which rebounded strongly after its earnings report, rising nearly 17.8% in Wednesday morning trading.

Super Micro Computer raised its annual revenue guidance after Tuesday’s close, indicating sustained strong demand for AI-optimized servers. This optimistic outlook highlights that downstream AI infrastructure spending remains robust, despite investor skepticism about how quickly chip manufacturers can translate demand into short-term profit growth.

Trading at a high valuation of 40x forward P/E, AMD’s market expects perfect execution in chip launches, infrastructure deployment, and customer deals. However, key catalysts like the MI450 and Helios rack-scale solutions are still ahead, with their market-driving potential growing daily.

Risk Warning and Disclaimer

Market risks are present; investment should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest accordingly at your own risk.