AMD Stock Down 9.6% as AI Chip Forecast Falls Short

Advanced Micro Devices Inc. ( AMD ) is grappling with investor disappointment as its projection for artificial intelligence (AI) chip revenue fails to meet lofty expectations, triggering a notable decline in its stock price. The chipmaker forecasted revenue of about $4 billion for its MI300 lineup, an increase from previous estimates but below analysts' more optimistic projections, which had reached as high as $8 billion.

AMD's AI accelerators are designed to compete with offerings from Nvidia Corp., which currently dominates the lucrative AI chip market. Despite being regarded as a leading contender in this space, AMD is encountering challenges in ramping up production to meet demand, a sentiment echoed by CEO Lisa Su. Supply constraints are inhibiting the company's ability to fully capitalize on the burgeoning AI market.

The tepid forecast extended beyond AI chips, with AMD also providing a subdued revenue outlook for the current quarter. Sales are expected to reach approximately $5.7 billion, falling slightly short of analyst estimates. Weak demand for chips used in video game hardware has contributed to the subdued growth trajectory.

The disappointing forecast comes in the wake of a lackluster performance from rival Intel Corp., which anticipates sluggish demand in the first half of the year. Despite projecting modest growth in the current quarter, AMD faces stiff competition from Nvidia, whose data center business continues to outpace its rivals.

While supply constraints are expected to ease later in the year, they are likely to impact AMD's performance in the near term. In the first quarter, the company reported earnings of 62 cents per share, exceeding estimates, and revenue of $5.47 billion. However, revenue from its PC chip division slightly surpassed expectations, while gaming-related revenue fell short.

Investors had previously fueled a rally in AMD's stock on bullish expectations for its AI prospects, but recent developments, including the announcement of a next-generation Nvidia chip, have tempered enthusiasm. The company's competitive landscape includes not only Nvidia but also Intel, particularly in the server and PC processor markets.

Technical Outlook
Advance Micro Devices ( AMD ) stock is down 9.6% as at the time of writing trading with a weak Relative Strength Index (RSI) of 32.43 putting itself in a position of an oversold region. Traders ought to be careful incase of a trend reversal.