AMD Keeps the AI Dream Alive Enough

Advanced Micro Devices plans to finish its yr with a banger. Investors couldn’t wait that lengthy to rejoice.

The chip maker extra generally referred to as AMD has been the second-hottest semiconductor inventory this yr subsequent to Nvidia. That meant a share-price acquire of 82% forward of its second-quarter outcomes late Tuesday—an enormous soar contemplating the near-term pressures the corporate is going through from the still-sluggish marketplace for private computer systems and lowered spending on extra conventional data-center elements, as tech giants shift their focus to the instruments wanted to allow generative synthetic intelligence.

AMD’s outcomes certainly mirrored that actuality. Revenue slid 18% yr over yr to about $5.4 billion, whereas adjusted working revenue plunged 47% to about $1.05 billion. Both have been in line to barely above Wall Street’s projections, however data-center section income nonetheless confirmed its first decline since AMD started breaking out its ends in 2021—and got here in in need of analysts’ projections. The one notable shiny spot was income for the corporate’s section that makes chips for PCs, which got here in 23% above targets—regardless of plunging by greater than half from a yr earlier.

But AMD has an enormous AI story to inform. The chip maker that efficiently broke by way of Intel’s stranglehold available on the market for central processor chips utilized in knowledge facilities is growing a brand new class of graphic processors, or GPUs, designed for synthetic intelligence makes use of in those self same knowledge facilities. That will put AMD up in opposition to Nvidia, the AI chip powerhouse whose inventory has outperformed AMD’s this yr.

Nvidia has constructed up very sturdy boundaries to entry in synthetic intelligence, due to its years of growing the chips and mandatory software program libraries utilized by builders. But AMD is clearly feeling assured sufficient in its personal choices to set some reasonably daring targets. The firm mentioned three months in the past that it expects its data-center income within the second half of this yr to leap 50% from the primary half. In its earnings name on Tuesday, it confirmed that concentrate on, however added that the majority of the good points would come within the fourth quarter, when it launches its new GPU chip. Analysts are at the moment projecting $2.26 billion in data-center income for AMD within the fourth quarter, 37% greater than that section has ever proven since AMD started breaking out these ends in 2021.

Wall Street continues to be totally on board; almost two-thirds of analysts charge AMD as a purchase, based on FactSet. But that’s down from 77% at the beginning of the yr, as just a few have downgraded the shares on worries about valuation forward of a high-stakes product launch. Several observe—accurately—that tech giants corresponding to Microsoft, Google and Meta Platforms which might be aggressively build up genAI capabilities can be comfortable to have another provider to Nvidia. And AMD Chief Executive Officer Lisa Su helped sentiment by noting in Tuesday’s name that the brand new data-center chips shall be “accretive to our company gross margins.” Citigroup analyst Christopher Danely cited that as a think about his upgrading AMD’s shares to a purchase score on Wednesday.

Still, the combined response to the corporate’s earnings experiences is an indicator of how risky AMD is more likely to be for the rest of the yr. The shares jumped greater than 3% in after-hours buying and selling on Tuesday following the outcomes, solely to slide greater than 6% Wednesday morning because the broad market got here beneath promoting strain following a serious downgrade of U.S. authorities debt. That was nonetheless a milder response in contrast with latest drops seen by main tech names corresponding to Netflix, Spotify and Uber that adopted combined outcomes of their very own this earnings season. In this market, being an AI arms vendor nonetheless bestows some bulletproof qualities.

Write to Dan Gallagher at dan.gallagher@wsj.com