Shares of Advanced Micro Devices (AMD 2.37%) dropped 2.5% on Wednesday following the chipmaker's release on the prior afternoon of its fourth-quarter 2023 report. The stock's decline is largely attributable to guidance for the first quarter of 2024 coming in lighter than Wall Street had been expecting.
Q4's results themselves were pretty much in line with analysts' projections, with revenue slightly surpassing the consensus estimate and earnings hitting the expectation on the bull's-eye.
AMD's key quarterly numbers
| Metric | Q4 2022 | Q4 2023 | Change YOY |
|---|---|---|---|
| Revenue | $5.60 billion | $6.17 billion | 10% |
| GAAP operating income | ($149 million) | $342 million | Result flipped to positive from negative. |
| Adjusted operating income | $1.26 billion | $1.41 billion | 12% |
| GAAP net income | $21 million | $667 million | 3,076% |
| Adjusted net income | $1.11 billion | $1.25 billion | 12% |
| GAAP earnings per share (EPS) | $0.01 | $0.41 | 4,000% |
| Adjusted EPS | $0.69 | $0.77 | 12% |
Data source: AMD. GAAP = generally accepted accounting principles. YOY = year over year.
Investors should focus on the adjusted numbers, as they exclude one-time items.
Wall Street was looking for adjusted earnings per share (EPS) of $0.77 on revenue of $6.13 billion, so AMD hit the bottom-line estimate on target and slightly surpassed the top-line expectation.
In the quarter, AMD generated cash of $381 million running its operations, down from $567 million in the year-ago period. It ended the quarter (and year) with cash and cash equivalents of $3.9 billion, down from $4.8 billion in the year-ago period, and long-term debt of $1.7 billion.
AMD's segment performance
| Segment | Q4 2023 Revenue | Change YOY | Change QOQ |
|---|---|---|---|
| Data center | $2.28 billion | 38% | 43% |
| Client | $1.46 billion | 62% |
Less than 1% |
| Gaming | $1.37 billion | (17%) | (9%) |
| Embedded | $1.06 billion | (24%) | (15%) |
| Total | $6.17 billion | 10% | 6% |
Data source: AMD. YOY = year over year. QOQ = quarter over quarter.
The company attributed the data-center segment's strong year-over-year and quarter-over-quarter revenue performance to sales growth in Instinct GPUs (graphics processing units) and fourth-generation EPYC CPUs (central processing units).
In 2023's Q4, AMD announced the general availability of its Instinct MI300X GPUs for accelerating artificial intelligence (AI) workloads. The company is aiming to get a piece of the fast-growing, data-center AI chip market, which is dominated by Nvidia.
The client-segment's revenue grew robustly year over year thanks to the PC market continuing to bounce back after its recent big slump.
Gaming-segment revenue declined both year over year and sequentially due to a decrease in semi-custom revenue. This is revenue derived from processors for consoles, including Microsoft Xbox and Sony PlayStation.
Embedded-segment revenue was down year over year and sequentially primarily due to customers reducing their inventory levels because of slowdowns in end markets, including auto and industrials.
First-quarter 2024 guidance
For Q1 2024, management expects revenue of approximately $5.4 billion, which equates to growth of about 1% year over year. Going into the report, Wall Street had been modeling for Q1 revenue of $5.73 billion, or about 7% growth, so AMD's top-line outlook fell somewhat short.
The company also guided for Q1 adjusted-gross margin of 52%. For context, in the year-ago period, this result was 50%, and in the prior quarter (Q4 2023) it was 51%.
For Q1, management also provided its general-revenue expectations for each segment. On a sequential-quarter basis, it guided for data-center revenue to be flat, with a seasonal decline in server-processor sales offset by a strong ramp up of its AI GPUs. It expects sequential-revenue declines in its client, embedded, and gaming segments.
Somewhat weak Q1 guidance but a raise in 2024 outlook for data-center AI chip sales
In short, AMD turned in a decent quarter, which had no major surprises but a somewhat disappointing Q1 outlook. On the positive side, on the earnings call, CEO Lisa Su raised the company's outlook for sales on its recently launched AI accelerator chip for data centers:
[O]ur prior guidance was for Data Center GPU revenue to be flattish from Q4 [2023] to Q1 [2024] and exceed $2 billion for 2024. Based on the strong customer pool and expanded engagements, we now expect Data Center GPU revenue to grow sequentially in the first quarter and exceed $3.5 billion in 2024.
