A tale of two chipmakers

Wall Street’s Super Bowl is here. And no, we aren’t talking about some silly football game: we’re talking tech earnings.

As both the hype and fear surrounding Silicon Valley’s AI spending ratchets up to new heights, investor scrutiny has only intensified. They turned the magnifying glass toward two AI powerhouses that reported earnings after the bell yesterday: Super Micro, and AMD (Advanced Micro Devices).

• Super Micro smashed its earnings report out of the park, revealing that sales climbed 123% year over year to $12.68 billion. Beyond that, the company raised its quarterly and full year guidance.
• AMD reported more of a mixed bag. While its current quarter revenue forecast of $9.8 billion was a 32% year over year jump and beat the Street’s expectations, investors were concerned about how much of AMD’s Q4 revenue came from sales in China, given the company will have a hard time relying on that market with new export restrictions.

Super Micro rose 13.78% today, while AMD plunged 17.31%, making this the stock’s worst day in years.

Two micros, one challenge

Fundamentally, both earnings reports gave investors reason to believe that selling the picks and shovels of the AI buildout is still a booming business.

For Super Micro, triple-digit year over year growth and higher full year guidance doesn’t happen unless customers are still placing huge infrastructure orders. Those numbers make sense, given what we know about Silicon Valley racing to build data centers faster than Marvel can come up with new franchises.

And despite its stock free-falling today, AMD’s earnings still painted a pretty rosy picture of AI demand, given its revenue beat estimates handily.

So if the news wasn’t actually all that bad, why did AMD’s stock plunge? That’s a question analysts asked themselves, too: “We were surprised at aftermarket weakness, as the numbers were quite good and AMD said the right stuff about the new products,” wrote Morgan Stanley equity analyst Joseph Moore in a note today.

Part of the reason that AMD fell was because expectations were just too high for the company, which has risen 67.52% over the past year as investors rallied around it as a top AI pick. Another shadow overhanging AMD was its multi-billion dollar deal with OpenAI that it announced in October. While that news powered the stock higher at the time, investors are now scrutinizing OpenAI’s circular, complex web of financing more closely.

TLDR: If there’s one thing we know about the AI trade, it’s that investors’ bar for success is just getting higher. And with each quarter that passes without a massive bubble burst, investors only want to hear pure, unbridled optimism from executives about the path forward.—LB