Actions of Advanced microdevices (AMD 3.96%) fell 7.6% after hours Tuesday, following the chipmaker’s release of its third-quarter 2024 report. The stock’s decline was largely attributable to slightly lower fourth-quarter revenue forecasts. lower than those expected by Wall Street.

Turning to third-quarter results, revenue was a bit better than analysts’ consensus estimate while adjusted profit was essentially in line with the estimate.

On the positive side, management increased its revenue forecast for graphics processing unit (GPU) chips enabling data center artificial intelligence (AI) for 2024. The company now expects this figure exceeds $5 billion, up from $4.5 billion in July, CEO Lisa Su said at a news conference. call for results. Management has steadily raised that forecast, which was $4 billion in April and $2 billion at the start of the year.

Key figures from Advanced Micro Devices

Data Source: Advanced Micro Devices. GAAP = generally accepted accounting principles. YOY = year after year.

Growth was driven by strong performance in the data center and customer segments. Investors should focus on the adjusted figures because they exclude one-time items.

Wall Street was expecting adjusted EPS of $0.91 on revenue of $6.71 billion, so AMD slightly beat expectations and essentially met the bottom line estimate. (I say “substantially met” because it only beat the estimate by $0.01, or about 1%.) The company also beat its own revenue forecast by $6.7 billion. (This does not give any profit prospects.)

During the quarter, AMD generated $628 million in cash from its operations, up 49% from the prior year. It ended the quarter with cash, cash equivalents and short-term investments of $4.54 billion, compared to $5.34 billion in the previous quarter. The company ended the period with long-term debt of $1.72 billion, unchanged from the previous quarter.

The decrease in cash, cash equivalents and short-term investments was due to a $548 million cash outflow during the quarter associated with the Silo AI acquisition, which closed in August. Before being acquired by AMD, this company was apparently the largest private AI laboratory in Europe.

AMD’s sector performance

Data Source: Advanced Micro Devices. YOY = year after year. QOQ = quarter over quarter.

Data center revenue marked a fourth consecutive quarterly high, largely driven by the strong ramp-up in Instinct MI300 GPU production and shipments. AMD introduced the Instinct series in Q4 2023 to compete NvidiaData center GPUs, which dominate the data center AI chip market. An increase in sales of EPYC central processing units (CPUs) also contributed to the segment’s growth.

The customer segment’s year-over-year and sequential growth was primarily driven by Ryzen processor sales. This segment sells chips for personal computers (PCs).

The gaming segment continues to struggle, largely due to a decline in semi-custom revenue, which comes from the sale of console processors.

The embedded segment’s revenue declined year-over-year, but its sequential revenue increased. This decline is due to the fact that customers continue to normalize their inventory levels following the slowdown in certain end markets, notably automotive and industrial. The sequential increase is due to an improvement in the demand environment for certain end markets.

AMD Q4 Forecast

For the fourth quarter, guided direction for:

• Revenue of $7.5 billion, which equates to growth of 22% year-over-year and 10% sequentially.
• Adjusted gross margin of 54%. As a reminder, this measurement was 54% in the third quarter which has just been published.

At the start of the report, Wall Street had modeled fourth-quarter revenue of $7.54 billion, so AMD’s outlook was slightly below that estimate.

A good overall report

AMD released a good report for the third quarter. It’s a particularly positive sign that adjusted EPS growth was significantly stronger than revenue growth, reflecting an expanding profit margin.

Revenue and margin guidance for the third quarter was strong, although the revenue outlook was a bit lower than Wall Street expected.

The after-hours stock sell-off might seem like an overreaction to some investors, as AMD’s fourth-quarter revenue forecast was just a bit lighter than Wall Street had expected. However, this dynamic can be explained in the context of the recent rise in AMD stock. Over a one-year period through Tuesday’s regular trading session, AMD stock is up 72%, outperforming the S&P500The yield of 42%. Given this strong performance, investors have high expectations.

A stock that deserves a place on your watchlist

Reiterating my conclusion after AMD’s latest quarterly report:

NVIDIA Stock remains my favorite AI Actionsbut the AI ​​chip and related technology space is growing so quickly that there is room for more than one big winner. AMD’s results since launching its Instinct GPUs late last year have been very promising.