Bloomberg: AMD's market value soared, surpassing $300 billion.

AMD's stock price surged on Thursday, continuing its upward trend and hitting a series of new records this year. The chip manufacturer's stock rose by 9.1%, pushing its market value above $300 billion for the first time, more than doubling from its low point in October.

Considered a major beneficiary of artificial intelligence, the optimistic sentiment towards new AI processors last month helped AMD recover from weak forecasts. Citigroup recently expressed extreme confidence in the semiconductor sector, especially with the continuous growth of the AI market, where various enterprises and organizations are purchasing AI chips. AMD, Nvidia Corp., and Broadcom Inc. are among the company's favored stocks.

Despite the recent surge, the stock does not appear cheap. Its price-to-earnings ratio is close to 50 times the expected ratio, significantly higher than industry leader NVIDIA's ratio of 32 times.

AMD reported record sales for its data center chips and sold $3.8 billion worth of GPUs. In its financial performance announcement for the fourth quarter of 2023 and the entire fiscal year, the company achieved strong results at the end of the year, with its data center GPU business growing due to increased demand in the AI trend. However, the company's performance guidance was lower than expected, leading to a 6% drop in its stock price in after-hours trading. It is noteworthy that AMD expects to sell $3.5 billion worth of the MI300 series AI GPUs by 2024, indicating limited demand to some extent, despite stating no supply constraints. This implies that demand for the new GPUs may be limited, as NVIDIA's AI GPUs have been in short supply due to high demand, with a reported waiting time of 52 weeks. Many anticipate that AMD may encounter similar issues.

AMD also released lower-than-expected guidance, forecasting a QoQ revenue decline in the first quarter from the client, embedded, and gaming sectors. In particular, revenue from semi-custom products (mainly composed of game console SoCs) is expected to see a significant decline of "over 30%." The company also predicts that first-quarter data center revenue will remain flat compared to the previous quarter, as the seasonal decline in server sales may be offset by strong growth in AI and HPC GPU sales (specifically the Instinct MI300 series).

Despite imminent challenges in the coming year, AMD's performance in the last quarter of the 2023 fiscal year was mixed. The company's fourth-quarter revenue was $61.68 billion, a 10% increase YoY, while its total revenue for 2023 was $226.8 billion, a 4% decrease YoY.The company's performance this year is mixed. On one hand, there was an increase in sales of data center processors, but on the other hand, the shipment volume of its client platform decreased, similar to the sales of gaming hardware.

In the fourth quarter of 2023, AMD's revenue was $61.68 billion, with a net profit of $6.67 billion, showing significant year-on-year and quarter-on-quarter growth. The company's gross profit margin increased to 47%.

Looking at the whole year, AMD's revenue was $22.68 billion, a 4% year-on-year decrease, and a net profit of $854 million, a 35% year-on-year decrease, marking the second consecutive year of declining net profit for AMD. At the same time, AMD's gross profit margin increased by 1% year-on-year to 46%.

Lisa Su, CEO of AMD, stated: "We achieved strong performance in 2023, driven by record sales of AMD Instinct GPUs, EPYC CPUs, and higher AMD Ryzen processor sales. The demand for our high-performance data center product portfolio continues to accelerate, enabling us to achieve strong annual growth in almost every part of the AI reshaping computing market."

Record Performance in Data Center Platform

In the fourth quarter of 2023, AMD's data center business unit reported revenue of $22.82 billion (a 38% year-on-year increase) and operating income of $6.66 billion (a 50% year-on-year increase). This was due to increased shipments of the fourth-generation EPYC processors for data centers and increased shipments of Instinct GPUs for AI and high-performance computing applications. It was the best quarterly performance ever for AMD's data center business, although it's worth noting that the performance of this unit now includes sales of Pensando hardware.

For the whole year, the net revenue of AMD's data center division reached $64.96 billion, a 7% year-on-year increase, making it the best year for this business unit. However, the operating income of this division decreased by 31% to $1.267 billion.

Decline in Client Platform Sales, but Signs of Recovery

In terms of client platform sales, with the PC market starting to recover and AMD successfully boosting sales of the latest Zen, AMD's client business unit achieved revenue of $14.61 billion in the fourth quarter of 2024, a 62% year-on-year increase based on the Ryzen 7000 series processors. The business unit generated operating income of $55 million, a 136% year-on-year increase.

However, due to a weak PC market last year, AMD's client PC business unit saw a 25% year-on-year decrease to $46.51 billion, with an annual loss of $46 million. This is a significant change, as the operating income of the company's client PC division reached $1.19 billion in 2022.

Gaming Sector

AMD's gaming hardware business unit (selling standalone Radeon graphics processors and gaming console SoCs) reported revenue of $13.68 billion in the fourth quarter of 2023, a 17% decrease from the same period last year, with operating income declining to $224 million.AMD stated that although the sales of Radeon GPUs have increased, the sales of game console SoCs have decreased.

The annual revenue of the gaming hardware business was $6.212 billion, a 9% decrease year-on-year, with an operating income of $971 million, a 2% increase year-on-year. AMD once again attributed the revenue decline to the decrease in sales of its game console processors, as the prices of these processors have been declining annually. Nevertheless, AMD's gaming division remains the company's second-largest business.

Embedded Business

According to AMD, the revenue of the AMD Embedded Division was $1.057 billion, a 24% decrease from the previous year, mainly due to reduced customer inventory levels. However, the division remained profitable, with a net profit of $461 million.

Looking at the full year, the revenue of the embedded business reached $5.3 billion, a 17% increase from the previous year. This growth is mainly attributed to the full-year revenue contribution from the acquisition of Xilinx completed in February 2022. The division's full-year revenue was $2.628 billion, a 17% increase from the previous year.

Summary

While overall, AMD's performance looks good and predictable, the company is quite conservative about the outlook for the first quarter.

AMD expects revenue for the first quarter of 2024 to be around $5.4 billion ± $300 million. The company predicts that revenue from its data center division will remain flat compared to the previous quarter, as the seasonal decline in server sales may be offset by strong growth in artificial intelligence and HPC GPU sales (specifically the Instinct MI300 series products).

Meanwhile, revenue from the client, embedded, and gaming sectors is expected to decline sequentially. In particular, revenue from semi-custom products (mainly including game console SoCs) is expected to see a significant double-digit decline.