What Happened:
Shares of computer processor maker AMD (NASDAQ:AMD) fell 8.7% in the morning session after the company reported first quarter results: its inventory levels materially increased, and revenues in its gaming and embedded segments fell by more than 45% year on year (the market is less focused on these divisions, however, as AI solutions dominate AMD's story). In addition, guidance was underwhelming as next quarter's revenue projection was mostly in line with Wall Street's projections.
On the other hand, AMD slightly beat analysts' EPS expectations this quarter. Its gross margin also improved. The company's performance this quarter was driven by 80%+ year-on-year growth in its data center and client segments. Growth in the data center business was driven by its Instinct GPUs and EPYC CPUs, while growth in the client division was propelled by Ryzen Series processor sales. Overall, this was a mixed quarter for AMD.
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What is the market telling us:
AMD's shares are very volatile and over the last year have had 26 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 19 days ago, when the company dropped 5.1% after the Wall Street Journal reported that Chinese officials told major telecoms companies in the country to "phase out foreign chips that are critical to their networks." This could affect chip manufacturers such as AMD, with a presence in the country. According to AMD's latest annual report, China accounted for more than 10% of the revenue generated in 2023.
AMD is up 3% since the beginning of the year, but at $142.67 per share it is still trading 32.5% below its 52-week high of $211.38 from March 2024. Investors who bought $1,000 worth of AMD's shares 5 years ago would now be looking at an investment worth $5,325.
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