Investors bailed on Advanced Micro Devices Inc. late today after the chipmaker reported lower-than-expected revenue in its key data center segment, despite posting solid results overall.

The company revealed fourth-quarter earnings before certain costs such as stock compensation of $1.09 per share on record-breaking revenue of $7.66 billion, up 12% from a year earlier. The results came in ahead of Wall Street’s forecasts, with analysts predicting slightly lower earnings of $1.08 per share on sales of $7.53 billion.

However, the higher revenue was offset by increased costs, resulting in net income of $482 million, down from $667 million in the year-ago quarter. Gross margin, which measures the revenue that remains after subtracting the direct costs associated with producing goods or services, rose by a single percentage point, to 51%.

AMD Chief Executive Lisa Su (pictured) hailed 2024 as a “transformative year” for the company, in which it generated record annual revenue and saw strong earnings growth. “Looking into 2025, we see clear opportunities for continued growth based on the strength of our product portfolio and growing demand for high-performance and adaptive computing,” she added.

Su told analysts on a conference call that the company anticipates “strong double-digit percentage revenue and EPS growth in 2025.”

For the first quarter of the year, the company is forecasting sales of $7.1 billion at the midpoint of its guidance, with a higher gross margin of 54%. That compares favorably with the Street’s forecast of $7 billion in sales.

The numbers were largely positive, except for the performance of AMD’s most critical business unit, the data center segment, which produces computer chips for data center servers. That business has been growing fast in recent quarters thanks to the insane demand the company has seen for graphics processing units that power artificial intelligent workloads.

It showed good momentum in the latest quarter, with revenue up 69%, to $3.86 billion. However, investors were hoping for even faster growth, and had expected the company to deliver $4.14 billion in data center revenue.

They were not happy that AMD was unable to meet their lofty expectations, and the company’s stock fell more than 8% in extended trading, wiping out a gain of just over 4% during the regular session.

The reaction was perhaps a bit harsh on AMD, which said the data center business grew its sales by 94%, to $12.6 billion, in fiscal 2024. That’s thanks to an increase in sales of its Instinct GPUs and also its EPYC central processing units, which power regular computer servers.

AMD positions its newest Instinct MI300X GPU as an alternative to Nvidia Corp.’s chips, which dominate the industry, and it accounted for over $5 billion of sales in the last year, officials said. It has been embraced by some of the biggest data center operators, including Meta Platforms Inc. and Amazon Web Services Inc.

One thing that may have struck investors was that AMD declined to provide a forecast for AI-related revenue for the coming year, which may add fuel to concerns that sales of the Instinct GPUs are slowing down.

However, Su insisted that the company sees a “steep, long-term growth trajectory” that will eventually grow to “tens of billions of dollars in annual revenue” in the coming years.

Somewhat surprisingly, Su praised the emergence of the Chinese AI company DeepSeek Ltd., which rocked financial markets last week when it became clear that its latest large language model could compete with the most advanced LLMs offered by U.S. companies, despite being built at just a small fraction of the cost. Some investors fear that the rise of lower-cost alternatives might hit chipmakers such as AMD, though perhaps not so much as AI developers such as OpenAI.

Su also hailed the Stargate project announced by U.S. President Donald Trump last month, which plans to invest $500 billion in building AI computing infrastructure to ensure the country remains at the forefront of the AI industry. “All of these initiatives require massive amounts of new compute and create unprecedented growth opportunities for AMD across our businesses,” Su insisted.

All of the talk and buzz around AI has meant that AMD’s other key business, which sells chips for personal computers, has largely been forgotten. But it put in a stellar performance, with sales rising 58% year-over-year, to $2.3 billion, above the consensus estimate of $1.9 billion.

AMD’s smaller gaming and embedded businesses both declined, however, reflecting sustained pressures on those segments. The gaming segment saw sales tumble by 59%, to just $563 million, with the company pointing to a drop in “semicustom” sales. Meanwhile, the embedded chip segment saw revenue drop 13%, to $923 million.

Holger Mueller of Constellation Research Inc. said the market is likely being a bit harsh on AMD, as he thinks the company is growing very well in what is still a transitional phase as it shifts its focus to the data center.

“Data center revenues were good, up almost 70%, and the client computing business had a record quarter, offsetting the shrinkage in its smaller gaming and embedded segments,” the analyst said. “It looks very good on the profitability side too, with operating income up more than 350%. The problem is that investors wanted to see turbocharged AI growth, but the data center business didn’t grow enough to satisfy such desires. It will need to pull off another epic quarter if it wants its investors to be really happy.”

During the quarter, AMD’s venture capital arm, AMD Ventures, participated in a number of big funding rounds, including a $333 million raise by the cloud infrastructure startup Vultr Inc., and a $250 million investment in the AI startup Liquid AI Inc.

Last November, the company also announced its intention to lay off about 1,000 workers, or 4% of its total staff, in order to free up more money to invest in AI development.

Today’s after-hours price action means AMD’s stock is down 33% in the past 12 months, compared with a 9% gain in the broader iShares Semiconductor ETF.

Photo: Robert Hof/SiliconANGLE