Shares in Advanced Micro Devices were poised for the biggest one-day drop since 2005 on Tuesday after the chipmaker’s current quarter guidance failed to meet Wall Street’s lofty expectations.
AMD was the biggest decliner on the S&P 500, falling more than 19 per cent to $10.99 after the company said net revenues rose 18 per cent from a year ago to $984m but was shy of analysts estimates of $984.5m.
Sales were driven by strong demand for its new Ryzen CPUs and graphics processors. But revenues were down 11 per cent sequentially, which the company attributed to seasonality in its computing and graphics segment and its enterprise unit.
AMD’s quarterly loss narrowed to $73m, or 8 cents a share, in the three months ended April 1, compared with a loss of $108m, or 14 cents a share, in the year-ago period.
That was wider than Wall Street forecasts of a loss of 7 cents. Adjusting for one-time items, a loss of 4 cents a share was in line with estimates.
Shares had surged 295 per cent last year as the company returned to annual revenue growth.
Bullish sentiment was partly fuelled by hopes that new chief executive Lisa Su could help drive a turnround at the company and in anticipation of the “eight-core” Zen processor that is part of its new Ryzen product line.
Moreover, analysts at Goldman Sachs noted that its outlook for revenues to rise about 17 per cent sequentially in the current quarter failed to show the “upside the bulls were anticipating”.
“AMD stock remains a ‘show me’ story as the market has, in our view, pre-traded the expected improvement in market share, gross margins and ultimately earnings per share,” said Toshiya Hari, an analyst at Goldman Sachs.
Adding to the bearish sentiment on the stock on Tuesday was a downgrade by analysts at Macquarie, who lowered the stock to “underperform” from “neutral” and cut their price target to $10 from $14, noting that Intel will have its own new products in the PC and server markets.
“Any share gains by AMD will likely be met with aggressive pricing actions by Intel, which could severely limit AMD’s margin expansion hopes,” said Srini Pajjuri, an analyst at Macquarie.