AMD stock slumps 5% on earnings miss, China AI chip concerns

Advanced Micro Devices (AMD) faced a difficult day on the stock market, with shares plummeting over 5% following an earnings report that fell short of expectations. The chip giant, based in Santa Clara, California, announced adjusted earnings of 48 cents per share, slightly below the 49 cents anticipated by analysts from LSEG. CEO Lisa Su highlighted the impact of U.S. export restrictions on artificial intelligence chips during a conference call with analysts. "Our AI business revenue has seen a decline year-over-year due to U.S. controls that have halted MI308 sales to China, while we transition to our next generation of products," Su explained. Looking ahead, AMD projected revenues of approximately $8.7 billion for the current quarter, with a margin of $300 million, outpacing the $8.3 billion that analysts had predicted. However, the company noted that this guidance does not factor in revenue from its MI308 AI chip intended for the Chinese market, which is affected by ongoing chip restrictions. In a recent interview on CNBC's 'Squawk on the Street', Su mentioned that AMD has been coordinating closely with the Trump administration to secure the necessary licenses for shipping its products to China, while adopting a cautious stance in their forecasts. "We believe we have an incredibly strong product lineup," she stated. "There are tens of billions in opportunities within a market projected to exceed $500 billion in the coming years." Earlier this year, AMD disclosed an expected $800 million impact in the second quarter due to these export limitations. The company expressed optimism about resuming shipments as the Department of Commerce prepares to restart the review of applications. However, some analysts from Wall Street remain skeptical about the timeline for these shipments, with Morgan Stanley describing it as "vague." They emphasized the necessity for AMD to achieve short-term gains in GPU sales to maintain its market position. Concerns also lingered regarding AMD's datacenter business, which saw a 14% increase to $3.2 billion and encompasses its central processors and graphics processing units. Goldman Sachs analysts have expressed caution regarding AMD's ability to substantially scale its Datacenter GPUs, suggesting that operational expenses could hinder profit margins. Despite the stock's decline following the earnings report, AMD's revenues surged by 32% year-over-year, reaching $7.69 billion, surpassing the $7.42 billion estimate from LSEG analysts. Net income also rose significantly, climbing to $872 million, or 54 cents per share, compared to $265 million, or 16 cents per share, during the same period last year. Su concluded by indicating that strong demand forecasts from major clients could lead to an "inflection point" in growth as they move into the third quarter.