When a company is one of the best performing stocks in the entire market, it needs to report perfect results and guidance to drive its shares higher.
AMD did not do that Tuesday. It gave a profitability forecast that disappointed some analysts.
The chipmaker reported better-than-expected third-quarter adjusted earnings 10 cents per share versus the 8 cent Wall Street consensus, but it forecast a gross profit margin of 35 percent for the fourth-quarter, below some estimates.
Advanced Micro Devices' shares were down more than 10 percent by midday Wednesday, after falling as much as 12 percent in after-hours trading following the report.
"While AMD's well publicized new PC, GPU and server CPU product launches are ramping into higher volume shipments and should be an increasing mix, the lack of sequential gross [profit] margin expansion has us questioning how the customers are valuing these new products or whether the market acceptance is slower than anticipated," Stifel analyst Kevin Cassidy wrote in a note to clients Tuesday.
Cassidy reiterated his hold rating and his $13 price target for AMD shares, representing 9 percent downside to Tuesday's close. At midday Wednesday it was trading at $12.71.
KeyBanc Capital Markets' Michael McConnell also said AMD's fourth-quarter gross margin guidance "disappoints" and missed his forecast by 0.40 percentage point.
One Wall Street analyst is worried AMD may need to spend more money to gain market share against Intel, which will hurt its earnings.
"We believe the company will continue to face stiff competition from its main two competitors which have also launched new products and, in the case of Intel, will likely ramp 10nm client CPU products next year," JPMorgan analyst Harlan Sur wrote in a note to clients Wednesday. "Thus, while we expect AMD to regain modest CPU/GPU share, we expect modest operating profitability during our modeling period taking into account the opex investment the team needs to make in order to drive market adoption."
Sur reaffirmed his neutral rating and $16 price target for AMD shares.
Multiple analysts also mentioned AMD CEO's cautious comments during the earnings call on future digital currency mining demand for the company's graphics cards.
"We're also predicting that there will be some leveling off of some of the cryptocurrency demand. As we look at it, it continues to be a factor, but we've seen restocking in the channels and stuff like that. So we're being a little bit conservative on the cryptocurrency side of the equation," CEO Lisa Su said, according to a FactSet transcript.
AMD's stock is up 90 percent in the past 12 months through Tuesday compared with the S&P 500's 20 percent return. That performance ranks No. 10 in the entire S&P 500, according to FactSet.
The company did not respond to a request for comment on the Wall Street analyst research.