AMD shares drop as forecast comes up short of some expectations

SAN FRANCISCO – Advanced Micro Devices posted fourth-quarter results that comfortably beat Wall Street estimates, but its shares tumbled in after-hours trading as the chipmaker’s forward guidance, while strong, failed to satisfy the market's towering expectations for the artificial intelligence boom.

The stock fell as much as 8% in extended trading Tuesday, a sharp reaction that underscores the immense pressure on chipmakers to not only deliver exceptional growth but also to signal an even faster acceleration in the multi-billion dollar AI hardware race. While AMD's forecast for the current quarter surpassed consensus estimates, it wasn't the blockbuster figure some investors had priced into the stock, which has more than doubled over the past year.

The results paint a picture of a company executing strongly on its strategy, yet struggling to outrun a market that demands perfection and exponential growth in the era of AI.

A Story of High Expectations

AMD's performance in the fourth quarter, which ended in December, was robust by any traditional measure. The company demonstrated significant year-over-year growth and surpassed analyst expectations on both the top and bottom lines.

• Q4 Earnings Per Share (EPS): $1.53, handily beating the LSEG consensus estimate of $1.32.
• Q4 Revenue: $10.27 billion, significantly outpacing the expected $9.67 billion. This represents a 34% increase from the same period last year.
• Q4 Net Income: $1.51 billion, or 92 cents per share, a dramatic increase from $482 million, or 29 cents per share, in the year-ago quarter.

The point of contention for investors, however, was the outlook. For the first quarter of 2026, AMD projected revenue that, while technically strong, tempered the most bullish forecasts.

• Q1 Revenue Forecast: AMD expects revenue of $9.8 billion, with a range of plus or minus $300 million.
• Market Expectations: This guidance topped the consensus analyst estimate of $9.38 billion but fell short of the "whisper numbers" on Wall Street, where some were anticipating a forecast closer to or exceeding the $10 billion mark, driven by accelerating AI chip sales.

Diving Into the Growth Engines

The company's overall strength was powered by impressive growth in its Data Center and Client segments, confirming its competitive gains against rivals Nvidia and Intel.

Data Center: The AI Powerhouse

The Data Center segment, which includes AMD's server CPUs and AI-focused Instinct GPUs, was the star of the report.

• Segment Performance: Sales reached $5.4 billion, a 39% increase year-over-year.
• Growth Drivers: CEO Lisa Su confirmed that growth was fueled by a powerful combination of its traditional central processors (CPUs) and its increasingly popular AI graphics processors (GPUs).
• CPU Momentum: Su emphasized that the AI build-out is not just a GPU story. "Server CPU demand remains very strong," she said on the earnings call. "Hyperscalers are expanding their infrastructure to meet growing demand for cloud services in AI, while enterprises are modernizing their data centers."

Client and Gaming: A Resurgent PC Market

The segment covering chips for PCs, laptops, and gaming consoles also posted a remarkable recovery, reflecting both a broader market rebound and AMD's market share gains.

• Segment Performance: Revenue rose 37% year-over-year to $3.9 billion.
• Key Driver: The company cited strong demand for its Ryzen series of processors, which have continued to win favor over competitor Intel in both consumer and commercial PCs.

Embedded Segment: Slower but Steady

The Embedded division, which provides chips for networking, industrial, and automotive applications, showed more modest growth.

• Segment Performance: Revenue grew 3% on an annual basis to $950 million.

Chasing Nvidia in the AI Gold Rush

The backdrop to AMD's earnings is its position as the primary challenger to Nvidia's near-monopoly in the market for high-performance GPUs that power large language models and other AI applications. Investors have rewarded AMD for its potential, sending its stock soaring in anticipation of it capturing a meaningful slice of this lucrative market.

AMD has made significant strides in validating its AI strategy with major customer wins and a clear product roadmap.

• Key Customers: The company recently announced that its AI chips are being adopted by industry leaders, including ChatGPT-creator OpenAI and cloud giant Oracle.
• New Product Pipeline: AMD is on track to ship its new integrated, server-scale AI system, dubbed Helios, later this year. Its next-generation MI450 AI accelerator is also generating significant interest. "The ramp is on schedule to start in the second half of the year, and MI450 is doing great," Su stated, adding that the company was in "active discussions" for more chip sales.

Navigating Geopolitical Headwinds

A persistent overhang for the entire semiconductor industry is the impact of U.S. export controls aimed at restricting China's access to advanced AI technology. AMD provided specific figures quantifying the impact of these rules on its business.

• China Sales: The company disclosed it recorded $390 million in sales of its Instinct MI308 chips—a specific variant for the Chinese market—during the fourth quarter.
• Expected Decline: Reflecting the tightening restrictions, AMD projects that revenue from these chips in China will fall to approximately $100 million in the current first quarter.

What to Watch Next

For investors, AMD's report is a classic case of a great quarter not being great enough for a stock priced for perfection. The company's fundamentals are undeniably strong, with growth across its most critical divisions and a clear strategy to compete in the AI space.

The immediate stock decline, however, serves as a reminder that in the current market, narratives and future expectations can hold as much sway as reported results. The path forward for AMD's stock will likely depend on its ability to deliver on several key milestones:

• Execution on AI: All eyes will be on the second-half launch of the MI450 chip and the Helios system. Smooth execution and rapid customer adoption are critical.
• New Customer Announcements: Securing additional flagship customers for its AI accelerators would further validate its competitive position against Nvidia.
• Sustained Market Share Gains: Investors will continue to monitor AMD's ability to take share from Intel in the CPU market, a core driver of its financial performance.
• Navigating Regulations: How the company manages the evolving landscape of U.S.-China trade relations will remain a key variable for its long-term growth trajectory.

Ultimately, AMD delivered a powerful performance but was met with the unforgiving expectations of a market captivated by the promise of AI. The challenge for Lisa Su and her team is no longer just to grow, but to grow faster than anyone expects.