AMD's AI chip revenue miss hits shares amid pressure from Nvidia

By Kanchana Chakravarty and Zaheer Kachwala

(Reuters) -Advanced Micro Devices shares tumbled 8% on Wednesday after the company's AI chip revenue failed to meet analysts' high expectations, underscoring its struggle to grab market share from well-entrenched market leader Nvidia.

The company's fourth-quarter data center revenue, which reflects demand for its AI processors, jumped 69% to $3.9 billion, missing 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.

The drop in AMD's shares on Wednesday erased about $15 billion in stock market value. Its shares fell 18% last year after more than doubling in 2023 on bets the company's AI-optimized graphics processing units would become more competitive against Nvidia's offerings. Nvidia's stock gained 171% in 2024.

An increasing push by tech giants including Microsoft and Meta — both AMD customers — to develop in-house chips that are cheaper and more efficient could also hurt demand for AMD's off-the-shelf processors.

BofA analysts said that as Nvidia continues to outperform and custom chips gain more traction at hyperscalers, it might be hard for AMD to "win" the AI narrative despite its strong growth levels.

The launch of Chinese AI firm DeepSeek's low-cost model has made investors more wary of heavy spending on AI chips, said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

AMD's results and outlook have "knocked confidence further", she added.

At least 22 analysts have cut their price targets on the stock, with the median now at $150, compared to $166.5 before the results.

(Reporting by Kanchana Chakravarty and Zaheer Kachwala in Bengaluru and Amanda Cooper in London; Additional reporting by Purvi Agarwal; Editing by Harry Robertson, Varun H K, Sriraj Kalluvila, Noel Randewich and Nia Williams)

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