Shares of Advanced Micro Devices (NASDAQ: AMD) fell as much as 5.5% on Wednesday morning, following the chip designer’s fourth-quarter earnings report.

AMD’s fourth-quarter earnings by the numbers

The fourth-quarter report was solid enough. Adjusted earnings rose 12% year over year to $0.77 per diluted share, exactly in line with Wall Street’s consensus estimates. Revenue increased by 10%, landing just ahead of analyst expectations at $6.2 billion.

However, management’s guidance fell short of market expectations. First-quarter sales are expected to stay fairly flat compared to the first quarter of 2023, with a $300 million margin of error around the $5.4 billion midpoint. Reaching the very top of that range would still miss the current analyst consensus target by a few million dollars.

The puzzle pieces that built AMD’s modest sales forecast

The meek next-quarter guidance was built out of many moving parts. Most of AMD’s reporting categories are trending down, with the notable exception of a strong ramping up in data center graphics processing units (GPUs). Of course, the driving force behind those strong GPU sales is the exploding interest in artificial intelligence (AI) systems, where AMD’s data center GPUs are teeing up to challenge early leader Nvidia (NASDAQ: NVDA) for long-term dominance.

“Our Data Center GPU business accelerated significantly in the quarter, with revenue exceeding our $400 million expectations, driven by a faster ramp for MI300X with AI customers,” said AMD CEO Lisa Su on Tuesday’s earnings call. “We launched our MI300 accelerator family in December with strong partner and ecosystem support from multiple large cloud providers, all the major OEMs and many leading AI developers.”

Note that AMD’s stock headed into this earnings report on a full head of steam, having gained 128.2% in the previous 52 weeks. AMD’s next-quarter sales guidance may be milder than expected, but the company’s gross margins are expanding, and those GPUs could be market-moving game changers in their own right.

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So today’s modest share price drop doesn’t look like a disaster. It’s fair to call it a profit-taking adjustment as AMD investors weigh strong margins and potential GPU success against a humble near-term sales target.

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Anders Bylund has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.

Why AMD Stock Fell as Much as 5.5% This Morning was originally published by The Motley Fool