Why Is AMD (AMD) Stock Soaring Today

StockStory - StockStory - Thu Feb 22, 10:22AM CST

Shares of computer processor maker AMD (NASDAQ:AMD) jumped 10.9% in the morning session as chip and AI stocks surged alongside broader market gains, with the Nasdaq rising by 2.1%, the S&P 500 by 1.5%, and the Dow gaining 0.57% following Nvidia's outstanding earnings results. During its Q4'2024 earnings, Nvidia reported impressive topline results (7.6% revenue beat), big gross margin improvement, and EPS outperformance vs. Wall Street's estimates. Notably, revenue grew 265% year-on-year and 22% sequentially during the quarter. The strong topline performance was mostly driven by the data center segment, which was up 409% year-over-year and 27% sequentially as demand for Nvidia processors optimized for generative AI, LLMs (large language models), and other AI workloads continued to accelerate. The company estimated that roughly 40% of Data Center revenue was driven by AI-related applications. 

Nvidia's guidance for the next quarter was also good, with revenue, gross margin, and implied operating profit coming in ahead of expectations. Overall, Nvidia's strong performance during the quarter highlighted the growing demand for AI-related technology and demonstrated the abundant growth opportunity for innovators within the space.

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AMD's shares are very volatile and over the last year have had 22 moves greater than 5%. But moves this big are very rare even for AMD and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The previous big move we wrote about was 22 days ago, when the stock dropped 7.4% on the news that the company provided fourth-quarter results with revenue guidance for the next quarter falling below Wall Street's expectations. Specifically, the Data Center segment is expected to see flat sequential growth with "the seasonal decline in server sales offset by strong Data Center GPU ramp." Management provided additional color on the server market during the earnings call, "So going into 2024, I would say the traditional server market is probably still mixed, especially into the first half of the year. There's still some cloud optimization going on, as well as sort of enterprise being a little bit cautious..." 

Despite this uncertainty, there were some positive points during the quarter. Revenue growth in the Data Center and Client segments more than offset declines in Gaming and Embedded units, leading to a slight topline beat. On the AI front, management hesitated to provide market share projections, suggesting it is still early days. However, it reiterated the market estimate for the Data Center AI accelerator business growing to approximately $400 billion in 2027. In addition, the company highlighted its production of AI GPUs (MI300X) to meet growing demand from major players like Microsoft, Oracle, and Meta. With the AI GPU business expected to surpass $3.5 billion in 2024, there's certainly momentum in this area. 

Overall, it was a mixed quarter for the company, which likely didn't deliver the level of optimism expected by the market, especially considering the growing wave of investors excited about the new AI prospects and expecting AMD to be a top player in the GPU market.

AMD is up 32.1% since the beginning of the year. Investors who bought $1,000 worth of AMD's shares 5 years ago would now be looking at an investment worth $7,516.

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