AMD forecasts Q4 revenue below estimates, raises 2024 AI chip forecast to $5 billion 

By Arsheeya Bajwa and Max A. Cherney

(Reuters) -Advanced Micro Devices on Tuesday forecast fourth-quarter revenue just shy of estimates as supply chain constraints hamper its ability to meet strong demand for AI chips, while the PC market grows more slowly than some investors expected.

Shares of the Santa Clara, California-based company fell 5% in extended trading. The stock has risen about 10% so far this year.

Demand for AI chips from big technology companies including Microsoft (NASDAQ:) and Meta (NASDAQ:) has been rising much faster than their supply from AMD (NASDAQ:) and larger rival Nvidia (NASDAQ:), limiting the chip companies’ ability to tap the order surge.

Revenue in its data center business, which includes AI chips, surged 122% to $3.5 billion, topping estimates.

“AMD’s stock was priced for a beat and raise,” Summit Insights analyst Kinngai Chan said. “Clearly, AMD’s (fourth-quarter) outlook was not good enough for investors.”

While AMD sees strong demand for its AI chips, it still trails front-runner Nvidia, which commands about 80% of the AI semiconductor market. AMD CEO Lisa Su said the company now expects to sell $5 billion worth of AI chips this year, up from $4.5 billion the company estimated earlier this year.

Analysts largely believe Nvidia will maintain its majority market share for the foreseeable future, owing in part to its entire AI ecosystem that includes the CUDA software and networking equipment.

Capacity for the production of AI chips will be very tight going into 2025, the world’s largest contract chip manufacturer TSMC said in July, marking a significant hurdle for the supply of these advanced semiconductors.

The company expects revenue of $7.5 billion, plus or minus $300 million for the fourth quarter, compared with analysts’ average estimate of $7.54 billion, according to data compiled by LSEG. AMD forecast an adjusted gross margin of roughly 54%, which met analyst expectations.

The company reported revenue of $6.82 billion for the third quarter, compared with estimates of $6.71 billion. AMD reported adjusted earnings of 92 cents a share, in line with analyst expectations.

AMD’s results weighed on the chip sector in extended trading. Arm Holdings (NASDAQ:) fell 1.7%, Nvidia dropped 0.3%, Intel (NASDAQ:) fell 0.4%. Chip equipment maker Lam Research (NASDAQ:) fell 0.8%.

“Most investors, once they digest AMD’s good results combined with their lackluster forecast, will try to extrapolate what that means for the rest of the AI-chip and semiconductor market,” Running Point Capital chief investment officer Michael Schulman said.