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Advanced Micro Devices Bottoms Out: Nowhere to Go But Up in 2025

Advanced Micro Devices' (NASDAQ: AMD) share price plunged more than 10% following what can only be described as a great report. While the Q1 guidance may be tepid, analysts set the bar high, and growth is expected to continue under the influence of AI for many years. Datacenter growth is a factor in the plunge; it slowed from previously higher levels but remains solid and in hyper-growth mode, rising nearly 70% in the quarter, providing no reason to believe the company is in danger, far from it. 

AMD’s position in the data center semiconductor market is well-established, and market share gains lie ahead. The slowing segment growth is due more to the law of large numbers than anything else; the $3.9 billion in revenue contribution is a company record expected to be exceeded in 2025. Additionally, the company is accelerating its AI stack development, making it easier to deploy and use, a factor that will impact results as the year progresses.

As for the legacy segments, PC and embedded markets are well-positioned for long-term growth, and internal metrics show PC markets gaining traction. The takeaway is that AMD’s 10% stock price plunge is likely a market capitulation caused by overinflated expectations among retail traders, setting it up for a strong rebound later this year. 

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Advanced Micro Devices Falls After Record-Setting Guidance

Advanced Micro Devices’ stock price fell after reporting record-setting Q4 results because the guidance is lackluster compared to the analysts' consensus reported by MarketBeat. However, the company forecasts another quarter of solid, double-digit growth, with revenue up 30% and margins widening, and CEO Lisa Tsu is known to be cautious in her assessments.

Regarding Q4, there is nothing wrong with the results, with the $7.7 in net revenue up 24% year-over-year, growth accelerating, and strength in the DC and Client segment. DC grew by 69% while Client by 58%, driven by demand for Instinct GPUs, EPYC CPUs, and Ryzen processors. 

Areas of weakness include Gaming and Embedded. The Gaming segment contracted by nearly 60% as demand from end markets remains weak and Embedded by 13%. The Gaming segment may remain weak throughout 2025, but Embedded will revert to growth soon as manufacturing and IoT demand picks up. 

The margin news is also good news for investors. The adjusted gross margin widened by 300 basis points and the operating margin by 200, driving a leveraged increase on the bottom line. Adjusted earnings of $1.09 are up 41% yearly due to improving earnings quality, and revenue leverage is expected to stick in 2025. 

Advanced Micro Devices Builds Value While Aggressively Investing in AI

Advanced Micro Devices built value for shareholders in 2024 despite what its CEO described as an “aggressive investment” in AI. The balance sheet highlights include a flat cash position and reduced short-term investments offset by increased receivables, inventory, and reduced liability. The net result is a 2.8% increase in shareholder equity and an expectation for additional gains in 2025. 

The analysts are bullish on AMD stock but present a hurdle for the market in Q1 2025. The guidance resulted in numerous price target reductions weighing on market sentiment. However, the analysts' conviction in the Moderate Buy rating remains high, with 21 of 29 or 72% rating the stock at Buy or higher.

The new revisions put the stock at the low end of the range, with a potential 40% upside at the consensus. Rosenblatt Securities is the stand-out revision, reiterating its Buy rating and $250 price target, which implies more than 100% upside for AMD stock. 

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Advance Micro Devices Stock is at Rock Bottom

Advanced Micro Devices stock price is trading near rock bottom following the Q1 guidance. Rock bottom aligns with a significant support level from 2023, set before the AI bubble drove the stock price up by 100%. The indicators suggest the market is deeply oversold at these levels, having retraced 100% of the rally, and the declining volume shows a lack of conviction in the sell-off.

The rebound could be significant once it begins; the only question is when it will start. The critical support target is in the $95 to $105 region and likely tested more than once before a sustainable rally forms. 

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Written by Thomas Hughes

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