AMD (NASDAQ: AMD) stock fell 8% in after-market trading yesterday (29 October) after the semiconductor giant released sub-par Q3 results. Last year’s positive Q3 performance led to a 114% gain in the following months but it looks unlikely to enjoy similar results this time around.

The price has already declined significantly this year, falling 24% from a high of $211 in March. Now at $159, it’s up only 15% year-to-date.

There was much fanfare in the run-up to Tuesday’s results, which only adds to the pain. It enjoyed a 7.7% boost in anticipation of a positive report but all those gains have now been erased.

So what happened?

At $6.82bn, revenue came in only slightly higher than analyst expectations of $6.71bn. Still, it’s a 17% increase on last year’s $5.8bn.

Earnings per share (EPS) came in on par with expectations at $0.92.

But the biggest disappointment was its forecast for the fourth quarter. Analysts now expect revenue to come in slightly below previous estimates of $7.54bn, citing supply chain constraints.

When competing with record-breaking stocks like Nvidia, matching expectations simply isn’t enough. Shareholders want to see companies hitting the ball out of the park.

Despite 122% revenue growth in its data centre segment, weaker segments are dragging it down. Unlike Nvidia, which focuses purely on GPUs, AMD has a more diverse range of products. Revenue in its gaming segment fell 69% and its embedded segment was down 25%.

Still, the average 12-month price target sits at around $187, a 17% rise from the current price.

Why I like AMD

AMD’s one of the leading semiconductor manufacturers in the US, specialising in the design of microprocessors, graphics processors and other semiconductor solutions. It’s known for competing with Intel in the CPU space and with Nvidia in GPUs, targeting both consumer and enterprise markets.

Its Ryzen processors are highly regarded in consumer markets, especially among gamers, while its EPYC processors are aimed at data centres. It also develops chips for custom hardware, like those in the PlayStation and Xbox consoles. More recently, it’s been increasing its focus on artificial intelligence (AI), recognising the rapid growth and demand in this area, especially within data centres and high-performance computing. 

Its MI series GPUs, particularly the MI200 and the newer MI300, are designed for high-performance computing and AI workloads, targeting sectors such as research, medical, and scientific analysis. The MI300 in particular uses AMD’s CDNA 3 architecture, specifically built for deep learning and large-scale data processing.

A challenging market

Aside from the fierce competition AMD faces in the semiconductor industry, there are other concerns. Supply chain risks, especially in high-tech manufacturing, could also impact AMD’s operations. Global semiconductor demand has seen ups and downs post-pandemic, and while data centre demand’s growing, the consumer PC market has softened.

Like other tech stocks, AMD’s share price can be volatile, especially in response to changes in demand for semiconductors, broader economic conditions, and competitive pressures. One particular concern is its exceptionally high price-to-earnings (P/E) ratio of 198. 

All the above factors could stifle price growth in the short term. However, while it’s not the result I was hoping for, I still like AMD’s long-term prospects. As such, I plan to hold on to my shares for now.