AMD Earnings: Embedded Chip Weakness Leads to a Soft Forecast, but AI Roadmap Is on Track

Narrow-moat Advanced Micro Devices reported solid third-quarter results but provided investors with a fourth-quarter outlook that fell short of our expectations, due to struggles within its embedded business. More importantly, AMD provided insight into its artificial intelligence accelerator growth trajectory, expecting $400 million of revenue in the fourth quarter and over $2 billion in 2024. These forecasts were below our prior estimates, but we don’t consider them to be a huge disappointment either, and it’s quite possible that such estimates could be conservative. We still think AMD will emerge as the number two player in merchant AI semis, behind only Nvidia. We trim our fair value slightly to $125 from $130, based on lower long-term gaming and embedded growth assumptions, but shares still appear cheap.