AMD Shares Plunge After AI Revenue Disappoints Investors

Advanced Micro Devices (AMD) experienced a significant drop in its shares, falling by 9 percent in premarket trading on February 5. This decline was triggered by the company's AI chip revenue, which did not meet the high expectations set by investors who have heavily invested in the growth potential of generative artificial intelligence.

AMD is one of the largest suppliers of chips for personal computers and servers. Although the company reported quarterly results that exceeded analyst estimates and provided a revenue outlook that was considered positive, these factors were overshadowed by the underwhelming performance of its AI chip revenue. Investors compared AMD's results to that of its main competitor, Nvidia, which dominates the market with nearly 80 percent of the share.

In its fourth-quarter report, AMD disclosed data center revenue, a key indicator of its AI revenue, amounting to $3.9 billion. This figure fell short of the consensus estimate of $4.15 billion, raising concerns among investors.

Ben Barringer, a technology analyst at Quilter Cheviot, pointed out that while AMD may be gaining market share from Intel in the central processing unit (CPU) sector, it is still far behind Nvidia and is struggling in the graphics processing unit (GPU) segment. "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 these losses continue, analysts predict that AMD could lose around $17.5 billion in market capitalization, assuming its stock holds at $108.78 in premarket trading. This situation comes at a time when technology giants like Microsoft and Meta are increasingly creating their own silicon solutions to handle the substantial data demands of Generative AI, facing heightened competition from Chinese AI companies such as DeepSeek.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted that investors have become more cautious, especially with the emergence of DeepSeek. She stated that AMD's results and outlook have further diminished investor confidence.

Following these developments, at least five analysts have downgraded their price targets for AMD's stock. The new median price target is now set at $155, down from $166.5 before the results were announced. In 2024 alone, AMD's stock has seen a decline of 18 percent, while Nvidia's shares surged by 171 percent.

Currently, AMD’s 12-month forward price-to-earnings ratio is 23.39, which is lower than Nvidia's ratio of 26.27. This disparity highlights the challenges AMD faces in competing effectively in the AI and GPU markets.

AMD, AI, revenue