Is the AMD Stock Plunge the Beginning of the End for Chip Stocks?

AMD stock is getting hit because the company did not raise its AI revenue outlook very much

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AMD (NASDAQ:AMD) stock is one of the top-trending names today, but the chipmaker’s shares are sinking about 7% in early trading. The stock is declining after the firm reported stronger-than-expected first-quarter results but shared guidance that was largely in line with Wall Street’s average forecasts.

Investors seem to be disappointed that the artificial intelligence (AI) boom isn’t enabling AMD to grow more rapidly.

AMD’s guidance may be conservative and not reflect the extent to which other chipmakers will benefit from the AI boom.

The chipmaker’s first-quarter earnings per share was 62 cents, excluding certain items, versus analysts’ average estimate of 61 cents. Its sales came in at $5.47 billion, slightly above analysts’ mean outlook of $5.46 billion.

AMD provided Q1 sales guidance of $5.4 billion to $6 billion, roughly in line with analysts’ average estimate. If it does generate sales of $5.7 billion in Q2, its revenue will have increased 6% versus the same period a year earlier.

Also importantly, the chipmaker predicted that it would sell $4 billion of AI chips this, up from its previous outlook of $3.5 billion. But that would equate to less than 20% of the firm’s 2023 revenue of $22.68 billion, while Nvidia’s (NASDAQ:NVDA) Q1 revenue came in at $18.4 billion. The majority of the latter figure was generated through the sale of AI chips.

AMD stock may be dropping today largely because many investors had expected the company to raise its outlook for AI-chip revenue significantly more than it did. Such an increase, in turn, would likely have resulted in the firm’s Q2 outlook coming in above analysts’ mean estimate.

UBS analyst Timothy Arcuri views AMD’s outlook of $4 billion of revenue from AI chips this year as extremely conservative. In a note to investors today, he suggested that the company’s revenue from such chips could easily surpass $6 billion.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.