Advanced Micro Devices AMD reported strong fourth-quarter results, with nice growth in client and data center revenue and a rebound in gaming revenue. However, all investor eyes are on the artificial intelligence accelerator, and on this front, AMD provided a disappointing growth forecast. AI GPU revenue in the first half of 2025 will be on par with what AMD earned in the second half of 2024. The firm expects AI GPU growth in the second half of 2025 and beyond, but concerningly, this business isn't on the same exponential growth trajectory as seen by its rival Nvidia NVDA amid the AI "Gold Rush."

We cut our fair value estimate to $140 per share from $160. We're pleased with AMD's x86 processor share gains in servers and PCs, but we are now less optimistic about AI GPU growth. Shares still appear undervalued, as we anticipate that AMD will achieve decent long-term AI GPU growth and carve out a piece of the AI market over time. Still, we see further downside scenarios if AMD can't deliver compelling AI solutions over time.

AMD's revenue in the December quarter was $7.66 billion, up 12% sequentially, up 24% year over year, and above the midpoint of guidance of $7.50 billion. Client revenue, which includes x86 PC CPUs, rose 23% sequentially and 58% year over year, as we believe AMD's market share gains over Intel INTC are accelerating. Data center revenue rose 9% sequentially and 69% year over year. The x86 server CPU business rose about 10% quarter over quarter to just under $2 billion, by our estimate. In turn, we believe the AI GPU business rose sequentially from about $1.65 billion in the September quarter to just under $1.8 billion in the December one.