By Arsheeya Bajwa and Max A. Cherney
(Reuters) -Advanced Micro Devices on Tuesday reported disappointing data center revenue, a segment which includes lucrative artificial intelligence chips that investors are betting on for rapid growth.
Shares of the Santa Clara, California-based company slumped roughly 4% in extended trading.
AMD’s shares have climbed more than 40% this year, far outpacing a nearly 12% jump in the benchmark chip index, as investors bet on the company’s ability to capitalize on the widespread use of AI.
Chips that power complex AI systems for Microsoft, Meta Platforms, generative AI leader OpenAI and other customers are still feverishly sought after by tech companies.
Meta has raised the bottom end of its annual capital expenditure forecast by $2 billion to a range of $66 billion to $72 billion. Microsoft forecast a record $30 billion in capital spending for its current fiscal first quarter to meet soaring AI demand.
However, AMD has not benefited from the AI spending splurge to the same degree as rival Nvidia.
“Investors may be paying closer attention to their data center segment as they roll out new products to compete with NVDA and go after more reliable customers,” said Carson Group chief market strategist Ryan Detrick.
In Nvidia’s fiscal first quarter, its data center segment jumped 73% to $39.11 billion as companies scrambled to adopt the company’s flagship Blackwell chips and systems. Nvidia’s data center business includes its graphics processors (GPUs) and networking hardware.
By comparison, AMD’s second-quarter data center revenue grew 14% to $3.2 billion, roughly in line with analysts’ expectations of $3.22 billion, according to LSEG estimates. Beyond its Instinct AI chips, AMD also includes server processors (CPUs) in its data center segment.
AMD’s relatively lackluster data center revenue in the second quarter was “enough to raise an eyebrow,” Dan Morgan, portfolio manager at Synovus Trust, an AMD and Nvidia shareholder. “AMD trades off of data center.”
In the conference call after AMD reported results, CEO Lisa Su said the company’s AI chip revenue declined year-over-year because of the U.S. export restrictions on exports to China and the transition to next-generation MI350 series AI chips.
The company began volume production of the MI350 series ahead of schedule in June, Su said, and AMD expects a steep ramp-up in production of the chip in the second half of this year.
CHINA LICENSES UNDER REVIEW
The chip designer’s third-quarter revenue of about $8.7 billion, plus or minus $300 million, compared with analysts’ average expectation of $8.30 billion, data compiled by LSEG showed. AMD estimated third-quarter adjusted gross margins of roughly 54%, compared with estimates of 54.1%.
