Chipmaker Advanced Micro Devices (AMD) has reported a robust performance in the fourth quarter of 2023, in line with analyst expectations. Despite this, the company saw a 6.8% drop in pre-market trading, primarily due to unimpressive first-quarter guidance.
Top-Line Aided by Data Center and Client Growth
AMD experienced a 10.2% increase in year-over-year revenues, reaching $6.17 billion, slightly surpassing the Zacks Consensus Estimate. The company’s data center revenues surged 38% year over year, reaching $2.28 billion, bolstered by the strong adoption of fourth-generation AMD EPYC CPUs and AMD Instinct GPUs.
In the client segment, revenues soared by 61.8% year over year to $1.46 billion, benefiting from strong sales of the Ryzen 7000 Series CPUs. On the other hand, the gaming segment saw a revenue decline of 16.8% year over year to $1.37 billion, attributed to lower semi-custom revenues. The embedded segment revenues were $1.06 billion, down 24.3% year over year.
Operating Margins and Cash Flow
The company’s non-GAAP gross margin contracted 30 basis points (bps) year over year to 50.8%, while non-GAAP operating expenses increased by 7.8% year over year to $1.73 billion. Non-GAAP operating margin contracted 40 bps to 22.9% in the fourth quarter. AMD reported operating cash flow at $381 million and free cash flow at $242 million in the same period.
Guidance and Outlook
Looking ahead, AMD expects first-quarter 2024 revenues to be around $5.4 billion. The company foresees strength in the data center GPU segment and anticipates data center revenues to be flat while client, embedded, and gaming segment sales are expected to decline sequentially.
AMD emphasized the potential for strong growth in its data center and client segments, offset by declines in the embedded and gaming segments. The company aims to expand its gross margin in 2024 and continue investing in AI opportunities while driving operating model leverage to deliver earnings growth faster than top-line revenue growth.
Analyst Recommendations
Currently, AMD holds a Zacks Rank #3 (Hold). In comparison, Silicon Motion Technology (SIMO) is a better-ranked stock in the broader Computer & Technology sector, with a Zacks Rank #1 (Strong Buy) at present.
