FILE PHOTO: A smartphone with a displayed AMD logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
(Reuters) -Advanced Micro Devices shares fell 9% in premarket trading on Wednesday, after the company's AI chip revenue failed to meet lofty expectations of investors betting billions on growth prospects of generative artificial intelligence.
AMD, one of the biggest providers of chips for personal computer and servers, reported quarterly results and revenue outlook above analyst estimates, but that was overshadowed by its miss in AI chip-related revenue as investors scrutinized its results against Nvidia, which controls nearly 80% share of the market.
The Santa Clara, California-based company reported fourth-quarter data center revenue - a proxy for its AI revenue - of $3.9 billion, compared to the consensus estimate of $4.15 billion.
"AMD may still be taking market share from Intel in the central processing unit (CPU) side of things, but it remains a long way behind Nvidia and is struggling to catch up when it comes to graphics processing units (GPU)," said Ben Barringer, technology analyst at Quilter Cheviot.
"Investors want the company to take the fight to Nvidia, but for now it is very much struggling to break the moat and disrupt its market position," he added.
If losses hold, AMD is set to lose around $17.5 billion in market capitalization at $108.78 premarket, according to data compiled by LSEG.
The results comes as tech giants including Microsoft and Meta increasingly dedicate resources to develop their own silicon for processing large data volumes required by GenAI, amid rising competition from Chinese AI company DeepSeek.
"Investors were always going to be more sensitive, given the arrival of...DeepSeek," said Susannah Streeter, head of money and markets at Hargreaves Lansdown, adding that AMD's results and outlook have "knocked confidence further."
At least 5 analysts have cut their price targets on the stock, with median PT now at $155, compared to $166.5 before the results.
AMD's stock fell 18% in 2024, while Nvidia gained 171% in the same period.
AMD's 12-month forward price-to-earnings ratio stands at 23.39, compared with Nvidia's 26.27.
(Reporting by Kanchana Chakravarty in Bengaluru and Amanda Cooper in London; Additional reporting by Purvi Agarwal; Editing by Harry Robertson and Varun H K)
