Advanced Micro Devices (AMD) shares declined as much as 9.1 per cent in extended trading after the chipmaker gave a disappointing forecast for artificial intelligence (AI) processors, a lucrative market now dominated by Nvidia.

The company projected that its MI300 lineup – a family of so-called AI accelerators – will generate about US$4 billion in revenue this year. Though that’s up from an earlier prediction of US$3.5 billion, some investors were hoping for as much as US$8 billion, according to analysts.

AMD is seen as a leading contender to challenge Nvidia in the market for accelerators, which help develop chatbots and other tools by bombarding them with data. But it’s playing catchup in the industry. One challenge has been making enough of the chips to meet demand, chief executive Lisa Su said on a conference call. 

“We are tight on supply,” she said. “There’s no question that – in the near term – if we had more supply, we have demand.”

AMD also gave a tepid revenue forecast for the current quarter. Sales will be approximately US$5.7 billion in the period, the Santa Clara, California-based company said. That compares with an average analyst estimate of US$5.72 billion. Weak demand for chips used in video game hardware has hampered growth. 

The shares fell as low as US$143.90 in late trading after the results were released. They had closed at US$158.38 on Tuesday, up 7.4 per cent for the year. 

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The AMD report follows a downbeat forecast last week from Intel, which said it expects demand to remain sluggish in the first half of the year. AMD is expecting growth in the range of 6 per cent in the current quarter, better than the roughly flat projection of its larger rival.

Though Intel is still bigger than AMD in overall sales, it only expects to get about US$500 million in revenue from AI accelerators this year. Nvidia remains far ahead of both companies. Its data centre business is on course to chalk up revenue of US$95.9 billion in its current fiscal year, up twofold from a year earlier and higher than the total revenue of Intel and AMD combined.

Su said the supply constraints with its MI300 line should ease later this year, but they are having an impact in the second quarter. 

In the first quarter, AMD had earnings of 62 cents a share, excluding some items, and revenue of US$5.47 billion. That performance compared with an estimated 61 cents in profit and US$5.45 billion in sales.

AMD’s PC chip division had revenue of about US$1.4 billion, compared with a US$1.29 billion estimate. Data centre sales came in at US$2.3 billion, in line with the average projection. Gaming computer-related revenue, meanwhile, was US$922 million. Analysts had expected sales of US$965.5 million.

Like Intel, AMD still gets most of its revenue from personal computer (PC) and server microprocessors. The once-solid server market has been less reliable recently because data centre operators have plowed much of their budgets into Nvidia chips – the very area AMD is now making its own play for.

Investors betting on AMD’s AI prospects had set off a rally earlier this year, though the stock cooled in recent months. The announcement of a next-generation Nvidia chip has weighed on the shares.

AMD also competes with Nvidia in the market for graphics processors that improve the images in video games. It’s the biggest rival of Intel in both server and PC processors – as well as in programmable logic chips, which can be reconfigured with software after they’re installed. And it supplies Microsoft and Sony with the main component in their game consoles.

AMD said that its gross margin – the percentage of sales remaining after deducting the cost of production – will be about 53 per cent in the second quarter, matching predictions. BLOOMBERG