Why AMD Stock Is Plummeting Today

Key Points

• AMD reported its second-quarter earnings after the market closed yesterday and posted better-than-expected sales.

• While AMD's top-line result beat expectations in Q2, performance in the AI data center market was weaker than expected.

• AMD saw strong sales for CPUs and other product categories, but what investors really want is stronger momentum for AI data center GPU sales.

• 10 stocks we like better than Advanced Micro Devices ›

AMD (NASDAQ: AMD) stock is getting hit with a big pullback in Wednesday's trading following the company's latest earnings report. The semiconductor specialist's share price was down 9.2% at 11 a.m. ET.

AMD published its second-quarter results after the market closed yesterday and reported earnings that were in line with Wall Street's targets and sales that beat expectations. While the company issued encouraging forward sales guidance, growth for the company's artificial intelligence (AI) graphics processing units (GPUs) slowed and was weaker than anticipated.

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AMD stock is seeing big post-earnings sell-offs

With its Q2 report, AMD posted non-GAAP (adjusted) earnings per share of $0.48 on revenue of $7.69 billion. Earnings for the period matched the average Wall Street analyst estimate, and sales for the period came in $260 million better than called for by the forecast. While sales were up 31.7% year over year, investors are having a problem with the revenue composition for the period.

Sales for AMD's central processing units (CPUs) for PCs and servers and GPUs for gaming accounted for a bigger share of revenue than the market expected. Meanwhile, stronger growth for the company's AI data center GPUs has been central to valuation gains for the stock over the last few months. Investors are selling out of the stock today in response to AI GPU sales missing the mark.

What's next for AMD?

AMD is guiding for third-quarter sales to come in between $8.4 billion and $9 billion -- significantly ahead of the average analyst estimate's call for revenue of $8.32 billion in the period. Hitting the midpoint of management's guidance range would mean delivering year-over-year sales growth of roughly 28%.

AMD's Q2 results and guidance for the current quarter were far from bad, but it seems sales on lower-margin CPUs are accounting for a larger-than-expected share of the company's growth. While the miss on AI GPU sales is disappointing, the stock deserves a closer look from growth investors with a long-term outlook after today's pullback.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.