Late at night, the Nasdaq soared! The AI giant collapsed

2024-08-08

Artificial intelligence giant AMD saw its stock price plummet as its performance fell short of expectations.

Except for Nvidia, the top technology giants on Wall Street have all announced their latest quarterly results. Although they all said that they would continue to increase their investment in artificial intelligence, the market is tired of the giants' constant "pie-in-the-sky" promises.

After the U.S. stock market opened, Supermicro Computer opened low and continued to fall. As of press time, it fell by more than 15% to US$521.96 per share.

It is worth noting that U.S. stocks opened higher on Wednesday local time. As of press time, the three major indexes all rose by more than 1%, and the Nasdaq soared nearly 2%.

Big bull stocks in artificial intelligence are stalling

Public information shows that AMD develops and supplies end-to-end green computing solutions for enterprise-level IT, data centers, cloud computing, high-performance computing, and embedded systems around the world. The company's products include a series of complete rack-mounted, workstation, blade server, storage, graphics processor, system, network equipment, and complete rack solutions.

The company's latest financial report showed that its revenue in the second quarter was US$5.308 billion, a year-on-year increase of 142.95%, roughly in line with market expectations of US$5.3 billion; non-accounting standard diluted earnings per share increased 78.06% year-on-year to US$6.25, lower than the market expectation of US$8.07.

In fiscal year 2024 ending June 30, AMD's annual revenue was US$14.943 billion, a year-on-year increase of 109.77%, and its non-accounting standard diluted earnings per share increased by 87.04% year-on-year to US$22.09.

Management said revenue growth was primarily driven by strong demand for new-generation air-cooled and direct liquid-cooled (DLC) rack-scale AI GPU platforms, which account for more than 70% of revenue in the enterprise and cloud service provider markets, and demand remains strong.

Although the company's revenue continued to grow, its profitability declined. In the second quarter, AMD's gross profit margin dropped from 17.01% in the same period last year to 11.23%; excluding the impact of stock-based compensation, the non-accounting standard gross profit margin also dropped from 17.06% in the same period last year to 11.29%.

Management explained that the decline in gross profit margin was mainly due to differences in product and customer mix. The company is now focusing on winning strategic new designs at competitive prices, and the initial cost increase of the new DLC AI GPU cluster during production ramp-up. In the future, it will introduce innovative platforms based on multiple new technologies from strategic partners and improve the production efficiency of its DLC solutions.

Management disclosed that the operating profit margin in the fourth quarter was 7.82%, lower than previously expected, mainly due to the increased contribution of the hyperscale data center business and the expedited costs of DLC components in the June and September fiscal quarters. In addition, the shortage of some key new components led to a delay of $800 million in revenue, but the delivery date of this component will be postponed to July, which led to a decline in its earnings per share, but will be confirmed in September.

In terms of outlook, AMD expects its revenue in the first quarter (third quarter) of fiscal 2025 to be between $6 billion and $7 billion, exceeding Wall Street's expectations of $5.46 billion; quarterly earnings per share are expected to be $6.69 to $8.27, with a median of $7.48, lower than the market's general expectation of $7.58.

Management expects revenues to be between $26 billion and $30 billion in fiscal 2025, and believes that short-term profitability pressures will ease and return to normal ranges before fiscal 2025 when volume deliveries of DLC and DCBBS begin. Deliveries will still be pressured in the short term by supply chain bottlenecks for some key new components, but production costs will decrease as production increases at factories in Malaysia and Taiwan, China, and economies of scale from expansion in the Americas and Europe.

Along with the financial report, a 1:10 stock split plan was also announced.

Liang Jianhou, the company's president and CEO, said the strong growth was due to the company's technology and product leadership in the AI infrastructure market, especially in generative AI training and reasoning. The company has been expanding rapidly to secure a large number of AI CSP opportunities and has deployed the world's largest AI super cluster.

During the earnings call, analysts raised questions about possible delays in shipments of Nvidia's latest Blackwell processors. AMD is a partner of Nvidia that makes AI-based servers for the chipmaker. Liang later said that delays when suppliers launch new technologies are a "normal possibility." But he believes that AMD can still provide liquid cooling solutions to its partners and there will not be much impact. He also said that the company expects a small contribution from Blackwell in the December quarter and that sales will improve in the March quarter.

The artificial intelligence sector may accelerate its decline

Because AMD provides artificial intelligence servers, its customers include Nvidia and Musk's Xai, and the company's stock price has become the biggest beneficiary of this round of technology bull market. In 2023, the company's annual increase was 246%, and the stock price once tripled in the first half of 2024. But then it gradually fell back, but the increase since the beginning of the year is still as high as 117%. AMD was included in the S&P 500 index in March this year and was included in the Nasdaq 100 index on July 22.

After the earnings report was released, JPMorgan Chase lowered its price target on AMD from $1,150 to $950.

As of last week, technology giants including Microsoft, Google, Amazon, Meta and Apple have released their latest quarterly financial reports. Financial report data show that the spending of large American technology companies on artificial intelligence is still increasing. Technology companies say that the risk of underinvestment is far greater than overinvestment. Data shows that in the first half of this year, Microsoft, Google, Amazon and Meta increased their capital expenditures by 50%, totaling more than $100 billion to $106 billion, an unprecedented high. A large part of these investments are used to support the construction of infrastructure for artificial intelligence.

However, the market is increasingly questioning the prospects of artificial intelligence. Recently, artificial intelligence concept stocks have suffered a sharp drop, and investors are worried that the output may not match the huge investment, which will reduce the efficiency of these technology companies.

The capital market's concerns have also spread along the industrial chain to upstream suppliers, including AMD. If these technology giants cut investments or cut inputs due to poor returns on AI projects, upstream suppliers such as Nvidia and AMD will also be affected. This is the logic of the current market.

The leader Nvidia will release its second-quarter earnings report on August 28. If it fails to exceed market expectations, the artificial intelligence sector may see an accelerated decline.

Editor: Ye Shuyun

Proofreading: Zhu Tianting

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