On February 5, Advanced Micro Devices (AMD) shares dropped by 9% in premarket trading following disappointing AI chip revenue results that fell short of investors' high expectations. AMD, a major chip provider for personal computers and servers, exceeded revenue forecasts but was overshadowed by its underperformance in AI chip-related revenue compared to Nvidia, which holds a dominant market share.
The Santa Clara, California-based company reported fourth-quarter data center revenue, seen as a gauge for AI revenue, at $3.9 billion, below the consensus estimate of $4.15 billion. Despite gaining CPU market share from Intel, AMD struggles to match Nvidia in GPU technology, as highlighted by Ben Barringer, a technology analyst at Quilter Cheviot.
Investors are eager for AMD to challenge Nvidia's market dominance but currently face obstacles in closing the gap within the market. The potential loss in market capitalization for AMD is estimated at $17.5 billion based on premarket trading data of $108.78, as provided by LSEG.
The tech industry sees increased competition from players like Meta and DeepSeek in developing AI processing capabilities, impacting market sentiments towards AMD. Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted the market's heightened sensitivity due to the emergence of DeepSeek, affecting investor confidence further.
Following AMD's results, at least five analysts have reduced their price targets on the stock, with the median price target now at $155 compared to $166.5 prior to the earnings report. In 2024, AMD's stock dropped by 18% while Nvidia's surged by 171%.
Looking ahead, AMD's 12-month forward price-to-earnings ratio is at 23.39, slightly lower than Nvidia's 26.27.