AMD Drops 9% Despite Strong Q4 as AI Chip Guidance Disappoints

$10.27 billion. That's how much AMD reported in fourth-quarter revenue—beating estimates by nearly $600 million. Yet the stock plummeted 9% in premarket trading Wednesday.

When Good News Isn't Good Enough

The chipmaker's Q4 performance was solid by any measure. Revenue topped LSEG consensus estimates of $9.67 billion, and first-quarter guidance of $9.8 billion (plus or minus $300 million) exceeded expectations of $9.38 billion. AMD's stock has already surged over 100% in the past year, riding the AI wave alongside Nvidia.

But in today's AI-frenzied market, "solid" apparently isn't enough. Some analysts had penciled in even stronger guidance, expecting AMD to capitalize more aggressively on the ongoing AI spending boom.

The Expectation Trap

"First, expectations were pretty sky high," Susquehanna's Chris Rolland explained on CNBC. The second issue? AMD disclosed unexpected Chinese revenue in the quarter that wasn't factored into street estimates. "When you account for that, the beat was far less substantial than we would've thought."

This highlights a curious dynamic in the AI chip space: companies are being penalized not for poor performance, but for failing to exceed increasingly unrealistic expectations. AMD is essentially being punished for transparency about its Chinese business—a disclosure that actually makes its core AI growth story more credible.

The Bigger AI Picture

Despite the market's reaction, AMD's AI momentum remains strong. The company hinted at multi-gigawatt contracts ahead, building on major deals already announced. OpenAI committed to deploying 6 gigawatts of AMD's Instinct GPUs over multiple years, starting with 1 gigawatt in the second half of 2026. Oracle plans to deploy 50,000AMD AI chips beginning later this year.

These aren't small numbers. For context, a single gigawatt of AI chips represents hundreds of thousands of processors—enough to power some of the world's largest AI training operations. The OpenAI deal alone could be worth billions over its lifetime.

Market Reality Check

What happened to AMD reflects broader questions about AI investment valuations. The sector has been priced for perfection, with investors expecting exponential growth quarter after quarter. But real business growth, even in revolutionary technologies, tends to be more measured.

The stock's 100% gain over the past year suggests the market had already priced in significant AI success. When guidance came in merely "strong" rather than "explosive," reality met inflated expectations with predictable results.