Chipmaker Advanced Micro Devices forecast first-quarter revenue below Wall Street estimates on Tuesday, but projected strong sales for its artificial intelligence (AI) processors.

As companies look to develop and operate their own generative AI applications, enterprise budgets are being funneled into processors used in AI servers.

Large and small businesses are looking for alternatives to the advanced AI chips produced by Nvidia, which commands roughly 80% market share. AMD has one of the few viable alternative products in the market.

AMD's fourth-quarter data center segment revenue, which includes its AI server chips, grew 38% from a year ago to $2.3 billion.

"AMD delivered an underwhelming quarter, with a notable miss on operating income and operating margins standing out the most," Investing.com analyst Jesse Cohn said.

"The company had little margin for error amid lofty expectations and investors were disappointed with the forward guidance provided for the current quarter."

Shares of the Santa Clara, California-based company fell nearly 6% in extended trading.

AMD forecast $3.5 billion worth of AI chip sales in 2024, above its prior forecast of $2 billion, Su said in the conference call. The company said it exceeded its expected $400 million of fourth-quarter AI chip sales, but did not quantify the figure.

The company reported overall fourth-quarter revenue of $6.17 billion, slightly above analysts' estimates of $6.12 billion.

AMD logged an adjusted gross margin of 51% for the quarter, compared to estimates of 51.4%.

AMD said it expects revenue of $5.4 billion, plus or minus $300 million, for the current quarter, compared with analysts' average estimate of $5.73 billion, according to LSEG data.

On an adjusted basis, AMD forecast first-quarter gross margin of about 52%, compared with the estimate of about 51.7%.

“The forecast is light of our expectations, but data center (and more importantly AI accelerators) are tracking ahead of our prior estimates,” Wedbush analyst Matt Bryson said.

AMD’s fourth-quarter PC chip segment revenue surged 62% to $1.5 billion. Post-pandemic sales of PC chips slumped as consumers have not upgraded their machines. The market is slowly returning to its pre-pandemic dynamics, analysts say. In 2024, worldwide PC shipments are set to grow about 5% following according to data from research firm Canalys. AMD's gaming segment shrank 17% to $1.4 billion, as the company has hit its peak revenue from the chips it designs for Microsoft's Xbox and the Sony PlayStation 5. AMD's videogame console revenue, which represents a significant portion of the segment that also includes graphics cards for PCs, typically peaks four years after the launch of new systems.

The market for programmable chips, which can be customized to perform a variety of functions, has faltered in past quarters as industries like automotive and industrial are being hit by a chip supply glut due to weak end-market demand.

AMD's fourth-quarter embedded segment revenue fell roughly 24% to $1.1 billion.

Rival Intel also flagged corrections in programmable chip inventories across industries on a post-earnings call, which it said are expected to last through the first half of the year.

  - Reuters