To The Moon

$Advanced Micro Devices(AMD)$ , the AI leader, released its fourth quarter report, and its shares fell 6.49% after hours.

In the fourth quarter, AMD's revenue and profits are in line with expectations, but dragged down by PC, gaming, embedded segments, and poor guidance for the first quarter of 2024, causing investor concerns.

Specifically, AMD's revenue was $6.168 billion in the fourth quarter, slightly exceeding analysts' expectations of $6.13 billion, an increase of 10.2% year-on-year, and an acceleration from 4.2% in the third quarter of last year:

By segments, the revenue of data center was $2.28 billion, a 37.9% increase, slightly less than analysts expected $2.3 billion; Client segment revenue was $1.46 billion, up 61.8% year over year, missed analysts' expectations of $1.51 billion;

Game segment revenue was $1.368 billion, down 16.8% year on year, exceeding analyst expectations of $1.25 billion; Embedded segment revenue was $1.06 billion, down 24.3% year over year, in line with analyst expectations:

The data center is AMD's core business, and the revenue hit a record high in the fourth quarter, mainly due to the strong growth of Instinct GPUs and fourth generation AMD EPYC CPUs.

The Client segment's strong performance was mainly due to the fact that the fourth quarter of 2022 was a low point in the cycle, with a low base, coupled with PC vendors replenishing inventories, resulting in temporary strong growth in revenue.

The decline in gaming segment revenue was mainly due to a decline in semi-custom revenue, while the decline in embedded segment revenue was due to downstream customers reducing inventories.

Looking ahead, AMD expects revenue in the first quarter to be $5.1 billion to $5.7 billion, with a midpoint growth rate of only 0.9%, far below Wall Street's expectations of $57.7 billion! The company expects data center segment revenue to remain flat, Client segment revenue will decline seasonally, gaming revenue to decline by double digits, and embedded revenue will decline.

For 2024, AMD expects gaming and embedded segment to be weak. AMD's biggest bright spot is in data centers and Client segment. The former is mainly driven by AI GPU MI300, with expected full-year revenue of $3.5 billion, significantly higher than the previous guidance of $2 billion given by AMD. Analysts' appetite is even stronger, they expect $8 billion!

Client segment was mainly driven by the recovery in PC shipments and are expected to grow by a low single digit in 2024. Besides industry recovery, AMD has an early layout in AI PCs. Currently, more than 90% of AI-enabled PCs on the market use Ryzen CPUs from AMD.

The first batch of AI PCs will be launched in February and are expected to be widely available in the second half of the year. They are expected to significantly increase in 2025!

Although gaming and embedded segments dragged down results, AMD's main focus has always been on data centers and Client segments. The two segments account for a combined 60.7% of total revenue. In this earnings report, AMD raised its AI GPU revenue guidance for 2024. Therefore, AMD's AI business is developing smoothly. However, considering overall revenue growth, it is clear that AMD's growth rate this year is too slow.

Compared with the slow growth in overall revenue, AMD's share price has soared this year and has hit a record high. As a result, its its Price-to-sales ratio valuation is approaching that of its peak in 2021:

With extremely high valuations and lower growth rates than investors had expected, it seems that investors are making rational choices and temporarily staying away from the AI bubble.

Besides AMD, another AI giant $Microsoft(MSFT)$ is also facing similar risks of high valuations and slowing growth rates compared with investors' expectations.

Coupled with $SUPER MICRO COMPUTER INC(SMCI)$ , the most popular AI leader, released its better-than-expected earnings report, AI concept stocks are about to pull back!