Two days ago, the global stock market experienced violent fluctuations, and technology stocks were the hardest hit. The huge amplitude reflects that the AI ​​arms race among major technology giants some time ago has caused widespread concern. Many people believe that the AI ​​arms race has evolved into a financial bubble. In fact, such doubts have lasted for a long time. With the release of the semi-annual financial report, people found that the profitability of technology giants was not satisfactory. Obviously, AI did not play its due role. Compared with other traditional core businesses, AI is more like a bottomless pit that continues to absorb money.

On Tuesday, August 6, the AI ​​industry popped up another depressing news. This year's artificial intelligence (AI) concept stock "darling" and Nvidia-related concept stock AMD released its fourth quarter report. The report showed that revenue in the previous quarter soared beyond expectations, but profit margins were weak, and profit growth was far less than expected. Revenue guidance continued to grow beyond expectations, and profit guidance was also inferior.

AMD's stock price plummeted after the financial report was released

On Tuesday, August 6, AMD announced the financial data for the fourth quarter of fiscal year 2024 (hereinafter referred to as the second quarter) ending June 30, 2024, and also announced the performance guidance for the first quarter of fiscal year 2025 (hereinafter referred to as the third quarter) ending September 30 and the full fiscal year 2025. The main financial data are as follows:

• Operating income: Net sales in the second quarter were US$5.31 billion, a year-on-year increase of 143.6%. Analysts expected US$5.3 billion, and the company's guidance range was US$5.1 billion to US$5.5 billion, a year-on-year increase of 200.8% in the previous quarter.
• Earnings per share (EPS): Adjusted and diluted earnings per share (EPS) under non-GAAP caliber in the second quarter were US$6.25, a year-on-year increase of 78.1%. Analysts expected US$8.14, and the company's guidance range was US$7.62 to US$8.42, a year-on-year increase of 308% in the previous quarter.
• Gross profit margin: The gross profit margin in the second quarter was 11.2%, a year-on-year decrease of 5.8 percentage points, and the gross profit margin in the previous quarter was 15.5%, a year-on-year decrease of 2.1 percentage points.

It is worth noting that the growth of AMD's EPS profit in the second quarter slowed down significantly, far lower than the 23% lower than analysts' expectations. FactSet data shows that this is the largest gap between AMD's profit and market expectations in at least five years. In addition, the gross profit margin accelerated in the second quarter, hitting a new low since the company began to announce quarterly financial reports in May 2007.

At the same time, in terms of performance guidance, AMD's revenue and earnings are even further away from Wall Street expectations. Based on the median of the guidance range, AMD expects revenue of US$6.5 billion in the third quarter, an increase of about two times year-on-year, far exceeding analysts' expectations of an increase of about 250%. The guidance range shows that in fiscal 2025, AMD expects annual revenue growth of 74% to 101%, a slower growth rate than fiscal 2024, but the slowdown is not as severe as analysts expected, and is still stronger than the growth rate expected by about 58% of analysts. AMD's earnings guidance is still inferior. AMD's third-quarter EPS median is expected to be $7.48, up 113% year-on-year, while analysts expected an increase of 122%.

Source: SEC

After the earnings report was released, AMD (SMCI), which closed up more than 1.3% on Tuesday, jumped after hours, once up more than 17%, and then all gains turned to declines, falling more than 10% after hours.

Source: uSMART SG

Nvidia's chip delay raises concerns about AI profitability

On August 1, research firm ALETHEIA reported that Nvidia's Blackwell chip may be delayed due to design defects. Later, Nvidia was exposed that it notified major customers Microsoft and another large cloud service provider last week that the most advanced AI chip in its new Blackwell series of chips will be delayed for three months or more, and large shipments of Blackwell chips may be delayed until the first quarter of next year. As soon as this news came out, it immediately caused market concerns. After experiencing the financial report storm of technology giants, the market began to question the monetization ability of AI.

Nvidia's move will also affect AMD's profitability. Lynx Equity Strategies later released a research report that AMD management recently expected strong growth in both the September and December quarters, thanks to the increase in Nvidia's new products. The above-mentioned reports of delayed Nvidia product releases may cause AMD to adjust its growth expectations. The research report predicts that AMD may lower its guidance for fiscal 2025, not only due to delayed shipments of Blackwell chips, but also due to slower shipment growth of H200 chips.

Unwavering commitment to the AI ​​arms race, do technology giants always believe in profitability?

AMD remains optimistic about the prospects of AI investment. CEO Charles Liang said that AMD continues to experience record market demand for new AI infrastructure, driving the company's revenue growth of 110% in fiscal 2024. AMD has the ability to become the largest IT infrastructure company, thanks to the company's leadership in technology, including rack-level DLC liquid cooling, and the commercial value of new data center building block solutions.

Layoffs to develop AI? On August 6, according to people familiar with the matter, global PC giant Dell Technologies is restructuring its sales and marketing teams and plans to lay off a large number of employees. Sources close to the matter told SiliconANGLE that Dell plans to lay off 12,500 employees starting August 6, but the news and numbers have not yet been confirmed. According to Bloomberg, the restructuring plan also includes the establishment of a new team focused on artificial intelligence services.

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